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Foundations of Business Strategy
Murali Chandrashekaran • Fred H. Siller Professor • Senior Associate Dean, Strategic Partnerships and Global Initiatives • Chair of the Americas, Partnership in International Management Network
Sauder School of Business, University of British Columbia
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Themes
1. Strategy 2. Execution
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Module 1: 9 September 2016
OBJECTIVES • To introduce myself • To meet you • Foundations • Aravind case - initial discussion & set up for Sept 18
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Oct 23, 2016 • The IPOD is 15! • Happy birthday IPOD! • Steve Jobs’ prediction on Oct 23, 2001: “With iPod, listening to music will never be the same again.”
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Why do firms exist?
Are there firms without which you cannot imagine the world?
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The Alaska Gold Mine - I
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Conceptual Overview
GOAL The Environment -
“Threats & Opportunities”
Management’s values & attitude toward risk
Capabilities - “Strengths & Weaknesses”
STRATEGY
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Strategic management process
Objec(ves/goals
External analysis Internal analysis
Strategic choice Implementa(on
Compe((ve advantage
Mission/Vision
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Mission
Vision
Sauder’s mission?
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To become Canada’s most influen(al, globally recognized business school through the impact of our research and our graduates.
Our mission is to create ideas that deepen and advance our understanding of management and with those ideas to develop innova(ve, principled, and insighLul leaders who change the world.
To foster the crea(on of knowledge and purpose-‐driven leaders empowered with knowledge and experience to tackle the profound problems of our (me
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Mission
Vision
Examples of missions
We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper. (2011)
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Examples of missions
“To bring inspiration and innovation to every athlete in the world”
“ _______ is built upon finding ways to do online search
better and faster in an increasing number of new places and in ever more efficient ways”
“The ______ Group is the only manufacturer of automobiles and motorcycles worldwide that concentrates entirely on premium standards and
outstanding quality for all its brands and across all its segments”
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Examples of missions
To eliminate needless blindness
How would Aravind know that it is making progress on delivering on its mission?
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Organizational objectives
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Maximize shareholder value •
Profits, cash flow •
Market share •
Maximize stakeholder surplus •
Triple boQom line •
Customer Sa(sfac(on
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Metrics?
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The Alaska Gold Mine -- II
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The Alaska Gold Mine - II
• Working on your own: What is your decision?
Go it alone__ Go with Pat__ Send Pat__
• With your group
Is Pat going to be involved? Do you tell Pat about the gold? 16
What deal do you strike with him?
Conceptual overview
The Environment - “Threats & Opportunities”
Management’s values & attitude toward risk
Organization’s resources and capabilities -
“Strengths & Weaknesses”
• Iterative
GOAL Implementation Levers:
¬Organization structure ¬Systems and processes ¬People and rewards
STRATEGY Strategic Leadership:
¬Lever and resource allocation decisions
¬Develop support among stakeholders
¬ Shape culture
Performance
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•
Perfect information will never be there
So, what is strategy? • Porter - Strategy is the act of aligning a company and its environment. That environment is subject to change, as are
the firm’s own capabilities. Thus, the task of strategy is to maintain a dynamic, not static, balance.
• Barney - Strategy is a pattern of resource allocation that enables firms to maintain and improve their performance • Ohmae - Strategy is really no more than a plan of action against the forces at work in the business environment • Murali - Strategy is about leveraging assets to actualize organizational purpose. It is about creating, capturing, and
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Strategy levels • Functional level • E.g., marketing & sales: Communication, channels, product
management, sales management • Business unit level
• HR, Accounting, Marketing & sales, Operations & logistics,
• Corporate level • Business units A, B, C…. • Network level
• Firm A, B, C..
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Corporate vs. Business Strategy • Corporate strategy defines the scope of the firm in terms of the industries and markets it competes. Corporate strategy decisions include investments in diversification, vertical integration and acquisitions, new ventures, the allocation of resources between different businesses of the firm, and divestments
• Business strategy is concerned with how the firm competes within a particular industry or market. If the firm is to prosper, it needs to establish competitive advantage over its rivals. Hence this area is also referred to as competitive strategy
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Key aspects of strategy • Anchored by a clear and compelling purpose • Add value - who do we serve? • Clear choices - what do you do, what don’t you do? • Tailored system of choices - Fit and focus • Meaningful metrics that guide behavior to what matters • Passion • Communicated from the perspective of the consumer • Understood by the junior-most person in the org 21
Masco 1986 • Richard Manoogian, CEO of Masco Corporation on the verge of a momentous
decision • He has a big pile of money and must decide
whether or not to invest it in a far-reaching new business venture • If he does not: Pass up on a new growth
trajectory and hundreds of millions of $$ • If he does and turns out wrong: $1-2billion down the drain 22
From Montgomery, The Strategist, 2012
What to do?
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So what shapes performance?
Absolute and relative performance
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External and internal factors matter
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Industry shapes performance (ROE 1990-2010)
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-‐20 -‐10 0 10 20 30 40
Tobacco Fruit Veg Products Toiletry Cosme(cs Pharmaceu(cals Clothing stores
Oil refining Footwear
Aerospace defense Retailing SoZware
Securi(es Brokers Commercial banks
Household Furniture Automobiles SoZ Drinks Insurance
Computers & Peripherals Paper & Forest Products
Comm. Equip. Airlines
Why external analysis? When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact
Warren Buffet
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Key questions
What macro-environmental factors will impact the design and implementation of strategy, and how stable are these?
What industry forces impact performance?
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Rich tool-kit • Key success factors analysis • What are the KSFs in the Ice Cream Industry?
• PESTLE • Porter’s Five Forces
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Integrated case 1 - Aravind
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