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07/04/22 1 Business Strategy Tutorial for MSFA students in Alliances & Acquisitions Dave Garten [email protected]

Business Strategy Tutorial for MSFA students in Alliances & Acquisitions

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Business Strategy Tutorial for MSFA students in Alliances & Acquisitions. Dave Garten [email protected]. What is a Strategy?. “plan of action designed to achieve a particular goal” – Wikipedia Strategy statement – 2 parts The objective + the “how” Fictional examples for Nissan - PowerPoint PPT Presentation

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Page 1: Business Strategy  Tutorial for MSFA students in Alliances & Acquisitions

04/21/23 1

Business Strategy

Tutorial for MSFA students in Alliances & Acquisitions

Dave [email protected]

Page 2: Business Strategy  Tutorial for MSFA students in Alliances & Acquisitions

What is a Strategy?“plan of action designed to achieve a

particular goal” – WikipediaStrategy statement – 2 parts The objective + the “how”

Fictional examples for Nissan Market: Achieve #1 market share in electric

vehicles by 2012 by introducing the “Leaf” and selling 500,000 units.

Financial: Achieve positive operating margin on the Leaf by 2012 by driving down battery cost to $200/watt.

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Strategy Development

External Analysis“Basis of Competition”

Internal Analysis“What we have”

Mission Strategy R & D SupplyMftg

SalesMktg

Coordinated action (tactics) “Translation of Strategies”

Frequency

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External - Industry Structure

Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

Str

ateg

y F

lexi

bili

tyHigh

LowDegree of Competition

Low

High

Pro

fita

bili

ty

Monopoly

Oligolpoly

MonopolisticCompetition

PureCompetition

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External - Industry Structure

Innovators EarlyAdopters

EarlyMajority

LateMajority

Laggards

Emerging• Features

Mature• Quality & reliability

Declining• Price

Product innovation Process innovation

Growth• service

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External–Trends/Environment - “PESTAL”

Political Telecom, deregulation, govt ownership, trade barriers,

subsidies, free speech, etc.

Economic Income, spending, interest rates, GDP, stock mkts, etc.

Sociocultural Demographic, psychographic, education, etc.

Technological New standards, new processes, new features, etc.

Environmental International pressure groups, env. laws, waste

regulations

Legal Intellectual property, antitrust, etc.

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External - Structural Opportunities

Fragmented -> consolidationEmerging -> TTM, locking up resources, tech switching cost “Network” -> standards, n**2

Mature ->incremental innovations, serviceDeclining ->shakeout leadership, niche, divest

Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

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External - Industry Structure Threats - Applying Porter’s 5 Forces

1.Threat of Entry Economies of scale (production, distribution), Product

differentiation (brand, switching costs), other cost advantage (know-how, patent, access to raw materials, location), contrived deterrence, govt

2.Threat of Rivalry # of competitors, size/influence of competitors, industry

growth rate, level of differentiation (vs. price), step function of capacity

3.Threat of substitutes Deliver the product/service in a different way?4.Suppliers

Bargaining power, # of companies, level of differentiation, threat of vertical integration, threat of substitutes

5.Customers Mirror image of suppliers Vert

ical

Hori

zon

tal

Source: Derived from Barney, Gaining & Sustaining Competitive Advantage

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Internal – Strength/Weakness

Value chain analysis – varies by firm…

Customer

Service

Distribution

Sales & MarketingManufacturi

ngDevelopmentResearch

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Internal - Core CompetenceDefined:

What can a company do w/its core competence? Delivery of new products, services, alliances Expand into related products and businesses Shape future markets

Examples: Canon, HDTV, 3M, Honda

Source: derived from The Core Competence of the Corporation, by C.K. Prahalad and Gary Hammel, HBS, 1990. c

collective learning that coalesce around individuals who coordinate a comprehensive set of diverse skills & integrate multiple streams of know-how

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Core Competency and Success

Core

Step 1 (38%)

Step 2 (26%)

Step 3 (7%)

Diversification (<1%)

Source: Bain, October 2003

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Core Strategies - Differentiation

“increase in perceived value relative to the perceived value of other firms” - Barney

“If you can’t differentiate yourself in this world, you get commoditized instantaneously. So we are constantly driving for more innovation, more differentiation and more technology.”- Jeffrey R. Immelt, Chairman and CEO, GE

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Core Strategies - Differentiation

Why differentiate?

Ways to differentiate

Organizing for differentiation

Better chance to be profitable Preference -> loyalty -> stickiness ->

profitability (basis for monopolistic competition)

Brand, features, services, bundled solutions, timing, location, distribution, customization, technology

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Core Strategies - Cost Leadership

Manufacturing businesses Conventional: High MSS -> High accumulated

volume low unit cost -> high profitability Experience curve (learning), know-how, IP,

specialization, improvements

Service businesses Know-how; experience curve applies

Cost structure Labor, capital, land, raw materials, geography,

use of technology, government policy

Organizing for cost leadershipSource: Derived from Barney, Gaining & Sustaining Competitive Advantage

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Core Strategies - Vertical Integration

Degree of control over value chain Forward integration toward customer Backward integration toward R&D

Flexibility Market efficiency Focus on CC

MarketGovernance

VerticalIntegration

Alliances

Control Supply

certainty Dilution of CC Antitrust Secrecy

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Strategy Evaluation ToolSWOT & Strategy Development

Opportunities (O)

Threats (T)

Strengths (S) Weaknesses (W)

SO Strategies

ST Strategies

WO Strategies

WT Strategies

Use strengths to take advantage of opportunities

Use strengths to avoid threats

Overcome weaknesses by

taking advantage of opportunities

Minimize weaknesses and

avoid threats

1.2...

1.2...

1.2...

1.2...

Source: Strategic management by Fred R. David

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What is Good Strategy?How do you know a good strategy when you see it? Will have many of these qualities:

X