Course Summary

Key Issues in Strategy

Outline

Course evaluationsA final experimentWhat we coveredWhat we didn’t cover

What is Strategy?Where do

we want to be?

Where are we now?

How do we get there?

Industry &OrganizationalAnalysis

Mission, Vision, & Target Setting

Competitive & Organizational Actions

The Strategic Process

Align BusinessSystems

Align BusinessSystems

AnticipateObstaclesAnticipateObstaclesLeadershipLeadership

Strategic PlanStrategic Plan

FeasibilityFeasibility

Strategic OptionsStrategic Options

EXECUTIONEXECUTION

Where Are We Now?Where Are We Now? Where Do We Want to Be?Vision / Mission

Where Do We Want to Be?Vision / Mission

Formulating a Strategic Plan

Where are we now? Porter’s forces VRIO

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?

Example: African Communications Group

Industry – limited competition against weak rivalsSuppliers – big threat of expropriation from TTCL; some risk from landlordsBuyers – retail, so no real mkt. powerEntrants – many licenses, but hard to assess what may actually transpireSubstitutes – many, but impact likely limited in short to medium termComplements/networks – very important; dependence on TTCL to maintain networkGovernment – privatization of TTCL a big if; mixed record on private foreign investment; potential need to rely on World Bank

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?

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

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

Escaping the Trap

Lower costs/innovateReduce capacityRaise search costsRaise switching costsDifferentiate productsExploit repeated interaction (i.e., tacitly collude)

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

Deterring EntryDon’t wait for entrant to show up – think of NutraSweetDevices 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

Vertical Relations

Double marginalizationVertical foreclosureHold-up issuesDownstream free-riding

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

IncentivesAlmost all incentive/monitoring schemes involve tradeoffsHidden 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 leversPay attention to psychology

Reciprocity Fairness

What Didn’t We Cover?

InnovationManaging the product life-cycleDurable goodsStrategic pricingLeveraging positionOrganizational strategyNon-market strategies

Innovation

R&D racesProtecting intellectual property Patents Copyrights Trade secrets Fighting piracy

Standards setting and network developmentLife in a Schumpeterian world

Managing the Product Life-Cycle

The pluses and minuses of being an innovator“Second mover” advantageWhen to introduce the next new thing and retire the old new thingBuilding and milking reputation

Durable Goods

Durable goods Cars Textbooks

The problem of “competing” against your former self Planned obsolescence Versioning Leasing vs. selling

Strategic Pricing

Use of two-part tariffs to lock-in customersUse of bundling to gain advantage and block entry The “suites war”

Pricing in network markets Interconnection fees Visa and MasterCard

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

Organizational Strategy

Hierarchies Depth Span of control

Incentive systems and corporate governanceMergers, acquisitions, and divestituresDiversification strategies

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

Other Topics

Corporate finance and strategyCompetition in network marketsStrategies in regulated industries

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.1COURSE TITLE: Marketing Strategy

http://web.haas.berkeley.edu/registrar/info/descriptions/MBA299M-1_Fall03.htm 

What next?

Books: Pankaj Ghemawat: Games Businesses

Play: Cases and Models (MIT Press). Saloner, Shepard, & Podolny:

Strategic Management (Wiley).

What next?

ThinkThink 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

Remember …

Quality of Outcome = Quality of Thought X Quality of Execution