Shanghai Jiaotong University
Required Courses for Under-graduated Students
Strategic Management
Instructor: Huang Dan
Antai College of Economics & Management,
Shanghai Jiaotong University
September, 2016
A little about me
Born and educated in Nanning Guangxi
Bachelor, Master, and Phd.(2000) Of Management at Xian Jiaotong University
8 years Experience in Ceramic, International trade, Pharmaceutical industries and Consulting company.
16 years teaching strategy at Antai.
Research Interesting: Strategy, Economics, Performance appraisal
Typical Schedule of Unit
☆Theories review: Framework and key point (30 minutes)
☆Case review: Facts-Analysis (30 minutes)
☆Break (10 minutes)
☆Case based solution: How to improve (25 minutes)
☆Decision share: Team work report (15 minutes)
☆Decision review: Comments (30 minutes)
☆Conclusion: Apply the theories to practice (10 minutes)
Grading & Requirements
Unit Participation 20%
Project 40%
Final test 40%
Unit Participation: Guidelines
Adhere to Antai Discipline for Unit
Turn off cell phones!
No laptops please!
Be prepared! Use study questions.
Prepare with friends.
Develop a voice in Unit. Be wrong (on occasion!)
Engage with your Unitmates.
Debate with/build on one another.
Use common information (cases, readings) so we are all on the same page.
What are you expected to get in the course?
Consolidate the strategic thinking
Hold the logic of strategy
Hone the skill of strategic analysis
Comprehend the total management
What is the most important field in the war Ⅱ
Rommel
Montgomery
VS.
What are you expected to get in the course?
What is strategy?
Strategy is a long term plan and the integrative implement activities.
Unit 1 Introduction to strategic management
What is the role of strategy?
maximize the value of the company
Unit 1 Introduction to strategic management
What are the value compose of?
Value is the function of profitability, growth, and risk.
Unit 1 Introduction to strategic management
What do we mean by maximizing the value of the company?
Balance the profitability, growth, and risk.
Unit 1 Introduction to strategic management
Unit 1 Introduction to strategic management
Is it the case that
Great Ideas = Pots of Money ?
Unit 1 Introduction to strategic management
Who will make money?
Unit 1 Introduction to strategic management
Uniqueness & Complementary Assets over the Life Cycle:
Unit 1 Introduction to strategic management
The nature of strategy
☆collectivity ☆stability
☆guider ☆futurism
☆competitive ☆integrative
Unit 1 Introduction to strategic management
What is strategic Management？
Strategic management is a cross-subject art and science of formulate, implement, evaluate a strategy to achieve the goal of the organization.
Unit 1 Introduction to strategic management
Essential of strategic management
Make the best use of the advantages and bypass the disadvantages to grasp the opportunities as well as meet the threat, and enhance the core competent of company by strategic investment and integrated operation.
Unit 1 Introduction to strategic management
Unit 2 Different level issue and stypes of strategy
Different Level of Strategy：
☆Corporate Strategy
☆Business Strategy
☆Functional Strategy
Issue of corporate Strategy
☆Aggress? Withdraw? Or Maintain?
☆Specialization or diversification?
☆Is there any synergic business?
☆How to layout the short term, mid term, and long term of key business？
Unit 2 Different level issue and stypes of strategy
Issue of Business Strategy ：
☆How should we compete？
☆What is our core resource and capability？
☆How to develop the competence？
Unit 2 Different level issue and stypes of strategy
Issue of Functional Strategy ：
How to support the corporate strategy and business strategy in relative functions?
Unit 2 Different level issue and stypes of strategy
Unit 2 Different level issue and stypes of strategy
Corporate Strategy：
☆Intensive Strategies
——Market Penetration
——Market Development
——Product Development
——Synergic Business Development
Unit 2 Different level issue and stypes of strategy
Corporate Strategy：
☆ Integration
——Forward Integration
——Backward Integration
——Horizontal Integration
Unit 2 Different level issue and stypes of strategy
Corporate Strategy：
☆Diversification
——Concentric Diversification
——Horizontal Diversification
——Conglomerate Diversification
Unit 2 Different level issue and stypes of strategy
Corporate Strategy：
☆Defensive Strategies
——Joint Venture
——Retrenchment
——Divestiture
——Liquidation
Unit 2 Different level issue and stypes of strategy
Unit 2 Different level issue and stypes of strategy
Strategy Style Strategy Purpose Strategy Theory
Intensive Strategies Intensify core business (Profitability) Satisfied with the potential of the core business
Integration Be optimistic about the industry chain in long run
Seek for monopoly (Profitability) There is synergy effects in
the value chain
Find new business to grow(Growth) Be Dissatisfied with the potential of the core business in growth
Diversification Find new business to grow(Growth) Be Dissatisfied with the potential of the core business in growth
Mind the risk (Risk) Feel bad about core business
Defensive Strategies Avoid the risk (Risk) Feel bad about core business
Business Strategy:
1、Overall Cost Leadership
2、Differentiation
3、Concentration
Unit 2 Different level issue and stypes of strategy
Functional Strategy:
☆Finance ☆Marketing
☆R&D ☆Operation
☆Organization ☆Human Resource
Unit 2 Different level issue and stypes of strategy
Unit 2 Different level issue and stypes of strategy
Case Analysis：Intel
What is the strategic risk to the strategic intent of Intel? What do you recommend to handle this risk?
Unit 2 Different level issue and stypes of strategy
Task statement
☆What？ ☆Why？
☆Who for？ ☆Where？
☆How？ ☆principle
Unit 3 Corporate Philosophy and Business Model
Key Elements of task statement
☆Who am I (Vision)?
☆How old am I (Philosophy Age)？
☆Why can I survive (Mission)？
☆Who is my target customers
Unit 3 Corporate Philosophy and Business Model
The nature of task statement
General——help to get multi feasible objects strategies
——can settle the conflict of different interest and keep long term consistency—A task statement should be steady in 100 years
Unit 3 Corporate Philosophy and Business Model
Unit 3 Corporate Philosophy and Business Model
What is Profit Model
1、The model to make money
2、The root of profit
Basic model of profit: Arbitrage
1、Arbitrage of goods
2、Arbitrage of capability
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Duplicating
1、Simple replicating
2、Profit multiplier
Unit 3 Corporate Philosophy and Business Model
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Scale of economy
1、Scale of economy
2、Learning curve
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Scope of economy
1、Synergy from operation
2、Synergy from finance
3、Synergy from marketing
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Total solution
1、GE
2、SAP
Unit 3 Corporate Philosophy and Business Model
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: ecology of industry
1、Basic Product Model
2、Accrete Model
3、Complementary Model
Unit 3 Corporate Philosophy and Business Model
Sales
Time
……
Basic product
Complements
The cash flow of Basic Product Model
Bounding
Unit 3 Corporate Philosophy and Business Model
Ecology of Culture Industry
Culture Industry
Tour
Economy
Real Estate
Marketing
Social Management
Leading the new life style
Advertisement effects
Internalization, Sponsoring
Ad fee
Value adding because of culture
Internalization, Sponsoring
Ad fee
Internalization
Sponsoring
Internalization
Sponsoring
Culture Tour
Politics advocating
Social Culture
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Transaction Cost
1、Switchboard Model
2、Model of Political Cost
Unit 3 Corporate Philosophy and Business Model
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Network value
1、Industrial Standard
2、Integration of Value Chain
Unit 3 Corporate Philosophy and Business Model
Overall Cost
The Number of adopt the standard
How can standard model make money
Sales
R&D Cost
Profit Zone
Unit 3 Corporate Philosophy and Business Model
Basic model of profit: Unique Product
1、Unique Model
2、Speed Model
Unit 3 Corporate Philosophy and Business Model
What is business model?
The engine driving profit
Unit 3 Corporate Philosophy and Business Model
Business model (A)
——Low price
Unit 3 Corporate Philosophy and Business Model
Business model (A)
——Differentiation
Unit 3 Corporate Philosophy and Business Model
The Business Model of Wal-Mark
Sale
Scale of economy
Low Cost
Rise Profit
High ROE
Store Number
Price
IT tech
Customer information
Inventory
Unit 3 Corporate Philosophy and Business Model
Discussion:
Figure out a business model for a company
Unit 3 Corporate Philosophy and Business Model
Unit 4 External Assessment: Value Creation
The Logic of External Audit
Most of external forces are unchangeable and you have to accept the given environment.
Special tip: External environment is only the necessary conditions, not sufficient conditions.
Unit 4 External Assessment: Value Creation
Buyers’ WTP in $
Industry Output
PIE
Competitors, Potential entrance, Buyers
Profit
Industry Demand
Opportunity Cost of Resources
(Industry Cost Curve)
Y-Axis
X-Axis
PIE
Buyers’ WTP in $
Industry Output
Industry Demand
Opportunity Cost of Resources
(Industry Cost Curve)
What affect the demand curve
☆Economic forcers
☆Social forces( society, culture, demography, geography)
☆Politic forces (government, laws)
☆Technologic forces
☆Complement
☆Substitute
Unit 4 External Assessment: Value Creation
Economic forces
☆Economy Circle, GDP per capital
☆Financial Policy
☆Monetary Policy
☆Exchange Rate
☆Income Distribution
Unit 4 External Assessment: Value Creation
Lorentz Curve
Unit 4 External Assessment: Value Creation
Core hypothesis
☆ Diminishing of marginal propensity to consume
☆ Rule of share of production factors
☆ Holding preference of property
Unit 4 External Assessment: Value Creation
Unit 4 External Assessment: Value Capture
Competitive strategy
1、Positioning the firm
2、Influencing the balance forces through strategic moves
3、Anticipating the shifts in the forces
Forces driving industry competition
1、Rivals
2、Potential entrants
3、Substitutes
4、Suppliers
5、Buyers
Unit 4 External Assessment: Value Capture
Intensity of rivalry
1、Numerous or equally balanced competitors
2、Slow industry growth
3、High fixed and storage costs
4、Lack of differentiation or switching costs
Unit 4 External Assessment: Value Capture
Intensity of rivalry
5、Capacity augmented in large increments
6、Diverse competitors
7、High strategic stakes
8、High exit barriers (Specialized assets, Fixed cost, Strategic interrelationships, Emotional barriers, Government and social restriction)
Unit 4 External Assessment: Value Capture
Threat of entry
1、Barriers to entry (Economics of scale, Product differentiation, Capital requirements, Switching costs, Access to distribution channels, Cost disadvantages independent of scale)
2、Expected retaliation（History, Ability, Commitment, Slow industry growth）
3、The entry deterring price
4、Properties of barriers
5、Experience and scale as entry barriers
Unit 4 External Assessment: Value Capture
Unit 4 External Assessment: Value Capture
Pressure from Substitutes
1、Price-performance alternative
2、Income position
Unit 4 External Assessment: Value Capture
Bargaining power of buyers
1. Concentrated or purchases large volumes relative to seller sales (especial heavy fixed cost)
2. Purchases represent a significant fraction of buyer’s costs or purchases
3. Products are standard or undifferentiated
4. Few switching costs
Unit 4 External Assessment: Value Capture
Bargaining power of buyers (Cont.)
5. Buyers earn low profits
6. Buyers pose a credible threat of backward integration
7. Product is unimportant to the quality of the buyers’ products or services
8. Buyer has full information
Unit 4 External Assessment: Value Capture
Bargaining Power of suppliers
1. More concentrated than the industry it sells to
2. There is not substitute
3. The industry is not an important customer of the supplier group
4. The supplier’s product is an important input to the buyer’s business
5. The supplier group’s products are differentiated or it has built up switching costs
6. The supplier group poses a credible threat forward integration
Unit 4 External Assessment: Value Capture
The role of government in competition
1. Balance of domestic politics
2. Geopolitics and international economic relationship
Unit 4 External Assessment: Value Capture
Key External Forces
Unit 4 External Assessment: Integration
Unit 4 External Assessment: Integration
External Factor Evaluation (EFE) Matrix
a. List critical success factors as identified in the external-audit process
b. Rank the critical factors
c. evaluate the difference of the critical factors
d. Assign a weight to each factor
e. Assign a -5-to-5 rating to each factor
f. Sum the weighted scores for each variable to determine the total weighted score for the organization
Unit 4 External Assessment: Integration
EFE
第8天
Key External Forces Grading Ranking Weight
Opportunity Economy growth and market boom 6
Low interest rate of loan 4 8
Good opportunity of direct financing 4 7
Tide of natural medicine consumption 4 5
Government support 5 2
Threat Less effect of advertisement 2 4
Intensive competition 2 1
Lack of raw material 9
Channel threat 2 3
The effect of external factors 1
Unit 5 The Internal Assessment
The logic of internal assessment
☆ make the best use of the advantages and bypass the disadvantages
☆Strategic investment
Tips: Not to be poles apart
bypass or shift the disadvantages?
☆Desire
☆Gift
Unit 5 The Internal Assessment
Key Internal Forces
☆Financial Status
☆Management System
☆Technologies
☆Market network
☆Special Resource
☆Scale of production and advantage of cost
Unit 5 The Internal Assessment
Financial Status Assessment
☆Scale and quality of asset
☆Profitability
☆Growth
☆Risk
Unit 5 The Internal Assessment
Scale and Quality of Asset Assessment
☆Cash flow
☆Rank of scale in industry
☆Status of asset
☆Asset Specificity
Unit 5 The Internal Assessment
Utilization
Transferability
Low
Low
Mid
Mid
High
High
Unused Resource
Solidified Resource
Energetic Resource
Question Resource
Unit 5 The Internal Assessment
Shanghai Highly: material resource support strategic development commonly
Material Resource
Unit 5 The Internal Assessment
Utilization
Low
Mid
High
Transferability
Low
Mid
High
Shanghai Highly: Human resource support strategic development a bit strongly
Human Resource
Unit 5 The Internal Assessment
Transferability
Low
Mid
High
Utilization
Low
Mid
High
Unit 5 The Internal Assessment
Shanghai Highly: Social network support strategic development commonly
Social Network
Utilization
Low
Mid
High
Transferability
Low
Mid
High
Unit 5 The Internal Assessment
Shanghai Highly: Technical resource support strategic development a bit strongly
Technical Resource
Transferability
Low
Mid
High
Utilization
Low
Mid
High
Recessive Resource
Unit 5 The Internal Assessment
Shanghai Highly: Recessive resource support strategic development a bit strongly
Utilization
Low
Mid
High
Transferability
Low
Mid
High
Unit 5 The Internal Assessment
Insight
Shanghai Highly: Insight support strategic development a bit strongly
Utilization
Low
Mid
High
Transferability
Low
Mid
High
Unit 5 The Internal Assessment
Shanghai Highly: Executability support strategic development a bit strongly
Executability
Transferability
Low
Mid
High
Utilization
Low
Mid
High
Unit 5 The Internal Assessment
Profitability
☆ Gross Profit Margin=sales minus cost of goods sold/sales
☆ Operating Profit Margin=Earnings before interest and taxes/sales
☆ Net Profit Margin=Net income/sales
☆ Return on Total Assets=Net income/sales
☆ Return on Stockholders’ Equity=Net income/Total stockholders’ equity
☆ Earning Per Share=Net income/Number of shares of common stock outstanding
☆ Price-earning Ratio=Market price per share/Earnings per share
Growth
☆ Percentage growth in total sales
☆ Percentage of new product in total sales
☆ Percentage of new customers
☆ Percentage growth in intangible asset
☆ Percentage growth in market share
Unit 5 The Internal Assessment
Financial risk
☆Short term risk
Current Ratio=Current assets/Current liabilities
Quick Ratio=Current assets minus inventory/Current liabilities
Unit 5 The Internal Assessment
Financial risk
☆Long term risk
Debt-to-Total-Assets Ratio=Total debt/Total assets
Debt-to-Equity Ratio=Total debt/Total stockholders’ equity
Long-term Debt-to-Equity Ratio=Long-term debt/ Total stockholders’ equity
Times-Interest-Earned Ratio=Profits before interest and taxes/Total interest charges
Unit 5 The Internal Assessment
Management
☆Planning ☆Organizing
☆Motivating ☆Staffing
☆Controlling
Unit 5 The Internal Assessment
Activity Ratios
☆Inventory Turnover=sales/Inventory of finished goods
☆Fixed Assets turnover=Sales/Fixed assets
☆Total Assets turnover=sales/Total assets
☆Accounts Receivable=Annual credit sales/ Accounts receivable
☆Average Collection Period=Accounts receivable/ (Total credit sales/365 days)
Unit 5 The Internal Assessment
Other Internal Forces Assessment
☆Technology advantage
☆Market network
☆Special Resource
☆Scale of production and advantage of cost
Unit 5 The Internal Assessment
Internal Factor Evaluation (IFE) Matrix
a. List critical success factors as identified in the internal-audit process
b. Rank the critical factors
c. evaluate the difference of the critical factors
d. Assign a weight to each factor
e. Assign a 1-to-5 rating to each factor
f. Sum the weighted scores for each variable to determine the total weighted score for the organization
Unit 5 The Internal Assessment
Unit 5 The Internal Assessment
Internal Factor Evaluation (IFE) Matrix
Advantage
Critical Factors Evaluation Weight
Product Portfolio 4
Management Sense
Technics and quality control 4
Brand Value 4
Market Development 4
Marketing
Company Culture
Financial Status
Unit 5 The Internal Assessment
Internal Factor Evaluation (IFE) Matrix
Median
Critical Factors Evaluation Weight
Cost of production 3
Scale of production 3
Market network 3
Finance 3
Unit 5 The Internal Assessment
Internal Factor Evaluation (IFE) Matrix
Disadvantage
Critical Factors Evaluation Weight
R&D 2
Facilities
Management
Reactivity 2
Human Resource 2
Control of Market Risk 2
Sum the weighted scores 1
Case study: Benq
1. What is the advantage and disadvantage of Benq in TFT business？
2. Which is the most important resource in strategic development？
Unit 5 The Internal Assessment
Matching Model
☆SWOT Matrix
☆SPACE Matrix
☆BCG Matrix
☆IE Matrix
☆Grand Strategy Matrix
Unit 6 Strategy Analysis & Choice
SWOT Matrix
☆List the firm’s key external opportunities
☆ List the firm’s key external threats
☆ List the firm’s key internal strengths
☆ List the firm’s key internal weaknesses
Unit 6 Strategy Analysis & Choice
SWOT Matrix
☆Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell (SO)
☆Match internal weaknesses with external opportunities and record the resultant WO Strategies (WO)
☆Match internal strengths with external threats and record the resultant ST Strategies (ST)
☆Match internal weaknesses with external threats and record the resultant WT Strategies (WT)
Unit 6 Strategy Analysis & Choice
Unit 6 Strategy Analysis & Choice
The Strategic Position and Action Evaluation (SPACE)
☆Select a set of variables to financial strength (FS), competitive advantage (CA), environmental stability (ES) and industry strength (IS)
☆Assign a numerical value ranging from +1(worst) to +6(best) to each of the variables that make up the FS and IS dimensions. Assign a numerical value ranging from -1(best) to -6(worst) to each of the variables that make up the ES and CA dimensions.
☆Compute an average score for FS, CA, IS, and ES by summing the values given to the variables of each dimension and dividing by the number of variables included in the respective dimension.
Unit 6 Strategy Analysis & Choice
The Strategic Position and Action Evaluation (SPACE)
☆Plot the average scores for FS, IS, ES, and CA on the appropriate axis in the SPACE Matrix.
☆Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
☆Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. This vector reveals the type of strategies recommended for the organization: aggressive, competitive, defensive, or conservative.
Unit 6 Strategy Analysis & Choice
Unit 6 Strategy Analysis & Choice
SPACE Matrix: Financial Strength (FS)
☆Return on investment
☆Leverage
☆Liquidity
☆Working capital
☆Cash flow
☆Ease of exit from market
☆Risk involved in business
Unit 6 Strategy Analysis & Choice
SPACE Matrix: Competitive Advantage (CA)
☆Market share
☆Product quality
☆Product life cycle
☆Customer loyalty
☆Competition’s capacity utilization
☆Technological know-how
☆Control over suppliers and distributors
Unit 6 Strategy Analysis & Choice
SPACE Matrix: Environmental Stability (ES)
☆Technological changes
☆Rate of inflation
☆Demand variability
☆Price range of competing products
☆Barriers to entry into market
☆Competitive pressure
☆Price elasticity of demand
Unit 6 Strategy Analysis & Choice
SPACE Matrix: Industry Strength (IS)
☆Growth potential
☆Profit potential
☆Financial stability
☆Technological know-how
☆Resource utilization
☆Capital intensity
☆Ease of entry into market
☆Productivity, capacity utilization
Unit 6 Strategy Analysis & Choice
SPACE Matching
☆ Aggressive Profiles： Market Penetration, Market Development, Product Development, Backward integration, Forward integration, Horizontal Integration、Concentric Diversification, Horizontal Diversification, Conglomerate Diversification, Combined Strategy
☆ Defensive Profiles ：Retrenchment, Divestiture, Liquidation, Concentric Diversification
Unit 6 Strategy Analysis & Choice
SPACE Matching
☆ Conservative Profiles ：Market Penetration, Market Development, Product Development, Concentric Diversification
☆Competitive Profiles：Backward integration, Forward integration, Market Penetration, Market Development, Product Development, Joint Venture
Unit 6 Strategy Analysis & Choice
BCG Matrix
Unit 6 Strategy Analysis & Choice
High
Industry Sales Growth Rate %
Medium
High
Low
Low
Cash Cows
Ⅱ
Stars
Question Marks
Ⅳ
Ⅰ
Ⅲ
Relative Market Share Position
Dogs
BCG Matching
☆Question Marks: Must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them.
☆Star: Forward, backward, and horizontal integration; market penetration; market development; product development; and joint ventures are appropriate strategies.
Unit 6 Strategy Analysis & Choice
BCG Matching
☆Cash Cows: Product development or concentric diversification may be attractive strategies for strong Cash Cows. However, as a Cash Cow division becomes weak, retrenchment or divestiture can become more appropriate.
☆Dogs: These businesses often are liquidated, divested, or trimmed down through retrenchment.
Unit 6 Strategy Analysis & Choice
The Flaw of BCG (汤明哲)
☆Haven’t been on the principle of the profit maximizing
☆There is not definite relationship between market share and profit
☆Haven’t considered the effect of synergy
☆Haven’t think over the financing from capital market
☆Management from top to bottom
Unit 6 Strategy Analysis & Choice
Multi-dimensions BCG
Unit 6 Strategy Analysis & Choice
第10天
Unit 6 Strategy Analysis & Choice
I-E Matrix
I-E Matching
☆Grow and build: Intensive (market penetration, market development, and product development) or integration (backward integration, forward integration, and horizontal integration) strategies can be most appropriate for these divisions.
☆Hold and maintain: market penetration and product development are two commonly employed strategies for these types of divisions.
☆Harvest or divest: Retrenchment, Divestiture, Liquidation strategies can be most appropriate for these divisions.
Unit 6 Strategy Analysis & Choice
Quadrant Ⅱ Quadrant Ⅰ
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
Quadrant Ⅲ Quadrant Ⅳ
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Divestiture
6. Liquidation
Rapid Market Growth
Strong competitive position
Weak competitive position
Slow Market Growth
Unit 6 Strategy Analysis & Choice
The Quantitative Strategic Planning Matrix (QSPM)
☆List the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM
☆Assign weights to each external and internal critical success factor
☆Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing
☆Determine the Attractiveness Scores (AS)
☆Compute the Total Attractiveness Scores
☆Compute the Sum Total Attractiveness Scores
Unit 6 Strategy Analysis & Choice
Ranking of Strategies: 1. Market Development, Joint venture; 2. Concentric Diversification, 3. Horizontal Diversification, Conglomerate Diversification; 4. Vertical Integration
Constraint of Firm’s resource
Strategic alliance or Joint venture strategy don’t tie up the firm’s resource
Constraint of market opportunity
Market Development
Horizontal Diversification
Strategic alliance or Joint venture
Distance of Strategic Synergy
Competence
Conglomerate Diversification
Unit 6 Strategy Analysis & Choice
Concentric Diversification
Vertical Integration
Other Aspects of Strategy Choice
☆Cultural Aspect
☆Policy Aspect
☆Governing Aspect
Unit 6 Strategy Analysis & Choice
第11天
Class 7
Formulation of Dynamic
Competitive Strategies
Commitment (A)
Tough commitment
☆Capacity preemption
☆Commitments to Brands and Advertising
Commitment (B)
Soft commitment
☆Most-Favored customer clause
☆Meet-the-competition clause
☆Frequent flier programs
☆Compatibility
BSB’s Competitive Advantages and Disadvantages in 1990
BSB’s adv. vs. Sky Sky’s adv. vs. BSB
Programming More tasteful Sky has more commercial programming
Picture Quality Better viewing quality Fewer than 20% of satellite HH have adopted D-MAC
Number of Channels 5 (vs. 4 for Sky) Astra has 16 channels
Dish Characteristics Smaller dish More expensive design
Retailer relations Better
Cost structure 50% higher than sky, plus losing money 3× as quickly
Capital availability Well capitalized Very high losses (parent impatience?)
Distance to breakeven 8 years (vs. 4 for Sky) in terms of sustained positive CF; only a 15-year franchise
Governance structure Large parents Weak leadership; a consortium of 15 companies
UK Govn’t Relations Good More dependent than Sky, which operates out of Luxembourg
Evaluate Positions in Fall 1990
Relative to Sky TV, BSB:
Has more staying power [?]
Faces higher costs
Is 8 yrs. (vs. 4 yrs.) away from breakeven
Has 1/5th of Sky’s installed base
Is bleeding ££ more quickly
BSB: Losing £6-7 m/week (sunk £800m)
Sky: Losing £ m/week (sunk £450m)
What to Do in 1990?
BSB
Worse cost position suggests they should exit
Will they exit?
How strong are the financial pressures?
How great is their (psychological) commitment?
Sky
Fight and induce exit of BSB
Other?
Simplifying Assumptions
◎Accept market projections in Exhibits 6 & 7 (., 80K new dishes sold each month, etc.)
◎ If one player concedes right away, it still incurs losses through 1991; it then exits the market, which the other player monopolizes thereafter.
◎ If both companies stay in, they are assumed to have equal market share by 1993. In 1991 and 1992, market share estimates correspond to Sky TV’s.
◎ Losses through 1990 are ignored (they are sunk!)
◎ Discount rate in calculating NPV is 10%
◎ Cash flows after 1999, if any, are treated as perpetuity (and discounted)
Payoff Matrix
For more information about the formulas used and the payoffs derived from these simplifying assumptions, see Excel spreadsheets on SloanSpace.
Game-Theoretic Analysis of BSB vs. Sky
Sky has a dominant strategy: Fight
There is a unique Nash equilibrium:
BSB exits, Sky Fights
But this is not robust!
£5 M is enough to change the outcome of the game
A merger between the two parties creates (a lot of) value
£ bn to be precise
How much should Sky pay BSB to exit?
Were BSB’s Actions Rational?
Curious assumption
Transition from thinking that one has a monopoly to thinking one is the second entrant leads them to push penetration forecast up!
Irrational escalation of commitment?
Sunk cost fallacy
Attempts to justify past choices
Selective perception
Other biases and distortions
Simmonds-Gooding out of control?
More charitable interpretation:
Aggressive posturing required in order to improve bargaining
position in merger discussions
Structural Analysis of the Industry
Suppliers – Powerful
Chips: PAL vs. D-MAC
Movies in inelastic supply
Buyers – Powerful
Advertisers
Substitutes
BBC/TV/Cable
Entry is difficult
High fixed cost/upfront investment
Must skirt regulatory loopholes
DSIRs
Rivalry – very tough
Technological differentiation limited (no HDTV content)
Market a pie of fixed size (according to industry observers)
Demand-Side Increasing Returns
British Satellite TV could only support one player because of the massive fixed (sunk) costs involved: standard, supply-side economies of scale
But also demand-side increasing returns
Also known as “network externalities” or “network effects”
Where network-effects are strong, markets tend to tip to a single standard
Two types: Direct (., telephone) and Indirect (., satellite dish, operating system)
Takeaways:
Competition with a small number of dentifiable players
Always recognize the threat of competition, even if it is indirect and has yet to materialize
One can think of a queue of potential entrants, with entities towards the head of that queue being identifiable before they disclose their intentions
Anticipate, do not react. Thinking ahead can help you change the nature of the game
Commitment may help modify competitors’ strategies
Game theory adds rigor to your analysis, but can only guide (not dictate) your decision
Strategic robustness vs. exact optimization
Appreciation for interdependence trumps considerations
of relative efficiency
Strategic Commitments
Like Ryanair, BSB v. Sky case illustrates (potential) importance of making strategic commitments
Definition: Give up freedom in order to change costs of future actions
Credibility requires that it is not possible to come back on threat or promise
Function as commitments if they change your payoffs going forward
Paradox: Less freedom of choice may lead to more favorable outcomes
Balance the benefits from altering competitors’ behavior with the loss in flexibility
Effects of Commitment
Two effects of Commitment on competitors
Direct effect: effect on profits for a given behavior of competitor
Strategic effect: impact on profits through the impact on competitor behavior.
Principle:
A commitment that makes rivals less aggressive
will usually have beneficial effect
When to be tough, when to be soft
A tough commitment (which makes rival less aggressive) has a positive strategic effect
“Top Dog Strategy”
., Why BA might want to respond to pipsqueak Ryanair.
Useful to deter entry, induce exit, or lead rival to choose small capacity
A soft commitment (which makes rival less aggressive) has a positive strategic effect
To get wimpy response act wimpy
“Judo Strategy,” ., why it makes sense for Ryan Air, Trader Joe’s, to commit to staying small.
Commitment Strategies in BSB vs. Sky
Sink costs
Convince rival that you will not exit
Induce rivals to exit
Induce customers to wait
BUT: Note incremental incentives to sink more capital
Like “both pay” dollar auction for $20
Risk, like in BSB, of paying way more than market is worth
Contracts as sunk costs
What will you get if you exit and sell contract?
Class 8
Co-opetition
Value Net
Playing Multiple Roles
Computer, and paperwork
Are they competitors or complement?
Making Markets
When and what make competitors being your complement?
Friend or Foe?
Keep your friends close, but your enemies closer
----Michael Corleone
Adding Value
Your added value=
The size of the pie when you are in the game minus the size of the pie when you are out of the game
Simulation: Game Theory
How can you add value?
Boundaries
Is this game separate from another game?
Change the Game
The elements of game
☆Players ☆Adding values
☆Rules ☆Tactics
☆Scope
Change one of the parts, and you change the whole
Chang the Players (Ⅰ)
Becoming a player
☆Competition is valuable, don’t give it away, get paid to play
☆Hidden costs of bidding
Chang the Players (Ⅱ)
Bringing in Customers
☆Educate the market
☆Pay them to play (especially early adopters)
☆Consider becoming your own customer
Chang the Players (Ⅲ)
Bringing in Suppliers
☆Pay them to play
☆Form a buying coalition to become a larger buyer
☆Do it yourself: become your own supplier to assure supply and create competition
Chang the Players (Ⅳ)
Bringing in Complementors
☆Form a buying coalition on behalf of your customers
☆Pay complementors to pay
☆Do it your self: become your own complementor —don’t rely on others to develop and price complements aggressively
Chang the Players (Ⅴ)
Bringing in Competitors
☆License your technology both to make money and to avoid complacency
☆Create second sources to encourage buyers to adopt your technology
☆Do it yourself: promote internal competition across teams
Competition is a way of life
Adding Value
Ways of adding value
☆Added value of a monopoly
☆Added value in a competitive world (trade-off and trade-on)
☆Added value of a relationship
☆Imitation
Limit Value
Pros:
☆Gets you a bigger slice of the pie
☆May give you cachet
☆May provide free publicity
☆May lead customers to buy your slower-moving products while waiting for the shortage to end
Cons:
☆Shrinks the pie--cost you sales today
☆May cost you a relationship and thereby future sales
☆Creates ill will
☆Leaves a hole in the market, inviting entry
Say Thank You to Your Customers
Nine Tips
☆Say thank you in kind, not cash
☆Save the best thank-you for your best customers
☆Say thank you in a way that builds your business
☆Don’t say thank you too quickly, or too slowly
☆Say you’re going to say thank you
☆Recognize that you may have to compete for loyalty
☆Think co-opetition: allow your competitors to have loyalty customers, too
☆Don’t forget to say thank you even if you have a monopoly
☆Say thank you to your suppliers
Most-Favored-Customers Clause
The Seller’s Perspective
Pros:
☆Makes you a tougher negotiator
☆Reduces your customers’ incentive to bargain
Cons:
☆Makes it easier for a rival to target one of your customers
☆Makes it harder for you to target one of your rival’s customers
Most-Favored-Customers Clause
The Customer’s Perspective
Pros:
☆Allows you to benefit from any better deal subsequently offered to other customers
☆Ensures that you’re not at a cost disadvantage relative to rivals
☆Eliminates the risk of looking bad if other customers strike better deals
Cons:
☆When others have MFCs, it’s harder for you to get a “special” deal
Meet-the-Competition Clause
Pros:
☆Reduces the incentive for competitors to bid
☆Takes the guesswork out of bidding—you know what bid you have to beat
☆Lets you decide whether to keep the customer
Cons:
☆Allow competitors to bid without having to deliver
Take-or-Pay Contract
Pros:
☆Reduces risk to your supplier, in return for which you can ask to pay less
☆Reduces a rival’s incentive to come after your customers by making retaliation a near certainly
Cons:
☆Increases severity of price war if deterrence fails
Rebate Program
Pros:
☆Allows you to charge your own customers low prices without threatening your rival’s customer base
☆Encourages customers—even price shoppers—to become loyal
☆Creates synergies with credit-card partners
Cons:
☆In rewarding loyalty in cash rather than kind, Doesn’t raise your added value
☆Is ineffective on small-ticket items
The Credibility Test
If you have the goods, put your money where your mouth is
☆Accept a pay-for-performance
☆offer a guarantee
☆Give free trials
第12天
Play Judo
The strategies:
☆A challenger prices a superior product sufficiently high to avoid eating into sales of the incumbent’s existing product
☆A challenger bets on an unproven product—one with some chance of failing
Why they work:
☆The incumbent holds back from copying the challenger—copying would trigger price competition and accelerate cannibalization of its existing product
☆The incumbent may copy the challenger—but doesn’t apply its existing brand names for fear they’ll be damaged if the product fails
The incumbent faces a dilemma
Going Long
Pros:
☆Since they only have one chance, suppliers (or customers) will compete more aggressively
☆You have the power—this is the time to use it and lock it in
Cons:
☆Long-term contracts can be hard to write and hard to enforce
Linking Different Game
Warner Bros. owns The Fugitive and Free Willy. The two movies are quite unrelated. Seeing one movie doesn’t necessarily make you any more, or any less, likely to want to see the other. The two movies neither compete with nor complement each other. All they share is the Warner Bros. name.
After the theatrical release and the premium-rental cycle, Warner Bros. was ready to sell the two videos to the mass market. What price should it charge? Let’s imagine that it conducted a survey of four hundred regular video buyers, and the results revealed tour equal-sized market segments:
·A hundred people would pay $20 for The Fugitive but had not interest in Free Willy.
·A hundred people had just the reverse preferences: they’d pay $20 for Free Willy but weren’t interest in The Fugitive.
Linking Different Game
·A hundred people said that they’d buy both movies at $20 each.
·Finally, a hundred people said they liked both moves but weren’t quite as enthusiastic: they’d pay somewhere between $15 and $20 for each of the movies, say $ for argument’s sake.
Warner Bros.’ unit costs for videos are about $5, equally split between manufacturing the shell, cartridge, and packaging; and advertising and shipping expenses.
Based on all this information, Warner Bros. decided on a suggested retail price at $ for each video, or a net price of $ after taking into account the video store markup. To reach that fourth group of customers and sell an extra two hundred videos. Warner Bros. would have to lower price to $.
Would that be worth it?
How should Warner Bros. price?
A Checklist for Change
Players Questions:
☆Have you written out the Value Net for your organization, taking care to make the list of players as complete as possible?
☆What are the opportunities for cooperation and competition in your relationships with your customers and suppliers, competitions and complementors?
☆Would you like to change the cast of players? In particular, with new players would you like to bring into the game?
☆Who stands to gain if you become a player in a game? Who stands to lose?
A Checklist for Change
Added Values Questions:
☆What is your added value?
☆How can you increase your added value? In particular, can you create loyal customers and suppliers?
☆What are the added values of the other players in the game? Is it in your interest to limit their added values?
A Checklist for Change
Rules Questions:
☆Which rules are helping you? Which are hurting you?
☆What new rules would you like to have? In particular, what contracts do you want to write with your customers and suppliers?
☆Do you have the power to make these rules? Does someone else have the power to overturn them?
A Checklist for Change
Tactics Questions:
☆How do other players perceive the game? How do these perceptions affect the play of the game?
☆Which perceptions would you like to preserve? Which perceptions would you like to change?
☆Do you want the game to be transparent or opaque?
A Checklist for Change
Scope Questions:
☆What is the current scope of the game? Do you want to change it?
☆Do you want to link the current game to other games?
☆Do you want to delink the current game from other games?
Strategy is an unusual development
☆Do the job which you have not enough ability and do it successfully.
☆Take the way which nobody took and take it right.
Dynamics of Strategy Field
Gravity Sling Theory
木星
New Horizons
号
Illustration of gravity sling
Dynamics of Strategy Field
New Horizons号
How can PHS success in China
☆Always on the side of consumers
☆Find the strategic demand
Fine the value fall
Fine the strategy fall
Dynamics of Strategy Field
Value Field
Government
Dynamics of Strategy Field
Value Field
E=∏(u, d, i, s, c, g)
Where：E is the value field of “Sling Firm”
u is supplier, d is buyer，i is competitor，s is substitute，c is complement，G is government.
第7讲 竞争战略分析
Dynamics of Strategy Field
Field
Vj=Kj· Mαj · Rjβj
Where：Vj is the extend of strategy field, Kj is constant，M is the total assets of BP，Rj is the state of BP in i dimension, αj , βj is the parameter，j ∈{u, d, i, s, c, g}。
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
BP’s perception on it’s strategic state: Kj
1、The performance of BP;
2、The strategic meaning of the business of BP;
3、The relationship between objective business and other businesses;
4、Does BP have plan of diversification;
5、The organization structure of BP;
6、Some managers of BP have special relation with the business.
第7讲 竞争战略分析
Dynamics of Strategy Field
Mass of BP：Mα
α is the energy of BP，which is determined by the following two aspects：
（1）The quality of assets
（2）It’s social network
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to supplier dimension, R concerns to the following aspects:
(1) The concentration in upstream industry of BP;
(2) Heterogeneous in upstream industry of BP;
(3) The state of substitute in upstream industry of BP.
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to customer dimension, R concerns to the following aspects:
(1) The concentration in downstream industry of BP;
(2) The standardization in downstream industry of BP;
(3) The product market of BP.
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to competitor dimension, R concerns to the following aspects:
(1) The threaten of competitor toward BP;
(2) The Potential threaten of competitor toward BP
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to complement product dimension, R concerns to the following aspects:
(1) The price of complement;
(2) The upgrade speed of complement;
(3) The convenience of acceeing complement.
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to the substitute dimension, R concerns to the following aspects:
(1) The price of substitute;
(2) The market of substitute.
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
Strategic state:
As to government dimension, R concerns to the following aspects:
(1) The attraction of government policy;
(2) The barrier of government policy.
第7讲 竞争战略分析
Dynamics of Strategy Field
Parameters field
We do need to care the customer demand, but also need to pay attention to the strategic demand; not only care our strategy, but also other companies’ strategies; not only care competitors’ strategies, but also the strategies in other industry.
Dynamics of Strategy Field
Issues of Operation in strategy implementing
Scale of production manufacture location
Cost of products manufacture manner
Inventory management Technical innovation
People training Products design (function & style)
Quality standard Responsibility
Unit 9 Strategy Implementation
Issues of Marketing in strategy implementing
Channel decision Sales structure
Price strategy Advertisement strategy
Quality guarantee Sales performance appraisal
Unit 9 Strategy Implementation
Issues of Finance in strategy implementing
☆Finance Budget
☆Business credit policy
☆Cash flow management
☆Outside Finance
Unit 9 Strategy Implementation
Issues of R&D in strategy implementing
☆Long term R&D planning
☆R&D project
☆R&D model
☆R&D budget
Unit 9 Strategy Implementation
Unit 10 Project presentation
Presentation by team
Introduce your case and decision
Grade for project design
• Full and accuracy of data 20%
• Clearness and preciseness of logic 30%
• Definitude of strategic intent 30%
• Writing form 10%
• Oral form 10%
(5-Score)
Unit 10 Project presentation
Wrap-Up
What is strategy?
☆Strategy is positioning
☆ Strategy is revolution
☆ Strategy is intent
☆ Strategy is thinking
Wrap-Up
Harmony: the essence of management
Wrap-Up
Greeting to theories
Wrap-Up
Ten key concepts and methods
1. Four-dimension model of strategic thinking
2. The mission of three level of strategies
3. The strategic idea of four species of corporate strategy
4. The logic framework of strategic management
5. The ultimate objective of strategic management
Wrap-Up
Ten key concepts and methods
6. The basic idea of strategic management
7. PIE model
8. SWOT analysis
9. BCG model
Wrap-Up
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