Strategy

Organizational Inflexibilities

"Non-Ambidextrous" - can't play 2 games at once - need different skills, resources, culture, business models, metrics of success

Metrics of "Better" (How to compare competitive advantage)

- Long run profit performance - economic value added - ROA, ROE Market Value - triangulate and use multiple metrics to evaluate company

Motivation for Integration: Horizontally

- Market Power (increase footprint in market, decrease competition) - synergies: economies of scope (having multiple related companies = lower cost/improve quality - Scale common resources (brand, IT) - reduce risk

Types of Revenue Models

- Product + complement (razor + blade) - Freemium - two sided market: Google gives free service but charges ads - Platforms/ecosystems (Facebook)

Foster's Discontinuity and Disruption (And its limitations)

- Response to 3part test - Discontinuous innovation = better in NEW Sways (competitors enter niche market) - New tech overtakes old (S-curve) - Attackers are quick and dominate market Themes of cognition, vested interest, cannibalization, inflexibility Limitations: - strong emphasis on organizational limits (blame on managers) - idea of discontinuitty was linked by others to radical innovation

Value network

- Service industries - All different aspects of firm are not in specific order of occurrence/importance - all interrelated

Positive Feedback

Enhancement or amplification of effect by its own influence on the processes that give rise to it

Source of Competitive Adv.: Value criterion

Increasing EVA

Implications of Network Effects (Demand side positive feedback)

Increasing returns: more users --> more value Path Dependence: more early users = long run success Bandwagon Effects Tippy markets: only one tech is adopted in market

Industry Life Cycle

Intro > Growth > Peak > Shakeout > Maturity - more firms enter market --> create more sales - price declining drives sales - as more firms enter, price = more competitive

PESTEL Framework

Political Economic Sociocultural Technological Ecological Legal external factors to consider that impact a company

Positive Feedback: Supply Side

Production/supply refers to emergence of dominant design as more of product is made, costs lowered due to learning/knowledge accumulation

Isolating mechanisms

barriers to imitation/replication of firm's competitive advantage causal ambiguity, complexity, tactic knowledge, resource mobility barriers, etc. typical response is just to raise cost of replication (not impossible, just expensive to copy)

Dueling Standards

biuld installed base, create network effect

Platforms

collections of standards orchestrating set of complementors and network effects ex: FB, google search, amazon strike balance b/t collab and competition

Technology S Curve

A) experimentation: era of ferment (many designs attempted, many firms enter/exit) B) Dominant Design: standardized set of features, shake out of firms that don't adopt C) Diminishing Returns - overall S-curve is an aggregate of mini s-curves

Viability Revenues

ARC + Scope -> Value prop -> realization of value -> Revenues!

Source of Competitive Adv.: Rarity criterion

Ability to increase EVA is not commonly available to firms

Competence-Destroying Innovation

An innovation that renders obsolete existing knowledge and skills **firm's capabilities (high end)

Value-Creating M&A: Leveraging

Applying OWN capabilities

Cognitive Limitations

Assumptions: - to take evolutionary approach to tech - paying more attention to CURRENT customers, markets, competitors - Assuming they can respond later

Types of Vertical Integration

Backward Integration: to raw materials Forward Integration: to distribution Horizontal Integration: to same business Diversification: to different business

Tata Nano Takeaways

Capacity case How much capacity should one create? market signals: - couldn't keep up with demand/production - majority of customers were previous car owners, not new car owners Invention = something new innovation = something that impacts societal needs

Network externality (network effect)

Choices of users affect value for other users

Disruptive Innovation

Christensen Disruptive: different dimsions, actually perform worse but may appeal to niche markets, different markets, lower-end in main market - eventually catches up with needs of mainstream markets **main stream market needs (high end)

Mergers

Combining 2 companies (friendly approach, similar size)

Positive Feedback: Demand Side

Consumer preferences refers to values for customers created by interface standard on a network - value comes from other users on that network

Platform Strategies

Coring: build platform around key function (Google Search) Tipping: Challenge existing platform(iPhone) Trojan Horse: attacker that undermines competitor from within

Generic Business Strategies

Cost Leadership (similar to competitors at cheaper price) Differentiation Advantage (unique items at premium price)

Architectural Innovation

- Tech of the components stays the same, but the configuration of the components is changed to produce a new design. - innovation in linking components - better solution for ill-equipped firms to make b/c current architecture (dominant design) is already embedded into organization * - incremental refinement within existing architecture **effect on current systems (high end)

Competitive Advantage

- ability to outperform competition

Purpose of M&A

- access new markets/tech - overcome competitive disadvantage - scale - stretching/leveaging - market power - private info Bad reasons: selfish managers

Durability and Relevance

- arguably biggest challenge - requires dynamic capabilities - core competencies become core rigidities (something that gets in the way)

Redfin Reading Takeaways

- brokerage, tech-enabled real estate business model - challenges with making profit: how to pivot? - entire BM relies on reducing costs - Core problem: not enough customers and they want agents

Starbucks Reading Takeaways

- capabilities: customer service, loyalty app, third place experience - resources: brand awareness, global reach, access to tech infrastructure, supplier relationship - imitation: easy to copy what Starbucks does - Durability: not easy to maintain everything it takes to make a cup of coffee - Relevance: keeps up with food trends and consumer preferences

Capabilities

- capacity to actually DO something; to perform a particular activity - deploy/combine/link resources

A Value Network Perspective

- companies look to leading customers to understand what products to dev'p - disruptive innovation --> creates low margin products for low/other end of market - resource dependance theory (reliance on exist. customers/markets)

Economic Value Added (EVA)

- difference between obtained value and costs to provide product/service

Realization (Revenue Model)

- how does firm convert EVA to revenue stream?

Dual strategies

- integrated - easy to get stuck in middle (have mediocre value and mediocre cost) - possible if there is no tradeoff between quality or price - ex: Toyota (increase in quality means decrease in amount of after-market repairs (decrease cost) - requires significantly different business model

Four themes of strategy

- long-term oriented - top management-related - resource allocation - integrative and coordinated

Do M&A's create value?

- many actually destroy shareholder value - company acquiring may pay more than market value for company - long-term effects

Motivation for Integration: Vertically

- market power (increase entry barriers for competitors, own distributors, etc.) - secure critical supplies - lower cost/improve quality - improve scheduling/planning

Activities/resources/capabilities (VARS)

- must introduce something new to the WAY business is operated - key enabler to create new business model - within firm and/or value chain (value network) - can happen within firm or can e outsourced

Multiple Standards emerge when...

- network effects aer small/differentiation (high demand for variety) - network effects exhibit diminishing returns - Different networks of users coalesce around different standards (windows, apple) - Multi-homing: low adoption costs

Disruption

- not necessarily first mover, but first to get it right - idea that industry shifts often coincide with emergence of new leaders - unique window in which companies become vulnerable

Resources

- tangible (financial, physical) and intangible (tech, relational, human capital) - what a company possesses

Standards

- tech that is the ONLY or dominant tech sold/used in market - desirable; companies aspire to have their tech be the standard - must be clear on what mechanism will drive potential standardization

Unrelated vs. Related Integration

- the more unrelated all of the businesses are, the lower the performance Single business firms < Dominant < Related > Unrelated

Value chain

- typical for manufacturing companies - activities being performed in a company - primarily activites: in/out bound logistics, marketing/after sale services - supported by "support activities" : R&D, HR, etc.

Winner's Curse

- winner of bid must pay highest bid (overvalue)

Different Types of Discontinuity

1. Competence-destroying innovation 2. Architectural Innovation

Scope of Enterprise

1. Customer segments 2. horizontal scope: how many different products/services 3. Vertical scope: along value chain

M&A: 3-Part Test

1. Does new business have potential for valuable synergies 2. Potential value is not dissipated by net price paid 3. There is a strong and credible post merger plan for realizing synergies

Sustaining Competitive Edge

1. Heterogenity: where do interfirm differences in performance come from? 2. Sustaining: how do performance advantages enjoyed by a firm become durable?

Value Proposition (VARS)

GOAL: Increase EVA - how new business model is creating/adding value to existing one - relative to existing offerings - business can change within certain range and still make a profit - create more value or reduce cost

Incremental Innovation

Gradual changes ; evolutionary **Current tech trajectory (low end)

Sustaining Innovation

Sustaining: improves tech performance along mainstream markets and dimensions - outstrips needs of mainstream market **main stream market needs (high end)

Modular Innovation

The basic configuration stays the same, but one or more key components are changed. **effect on current systems (low end)

Interface Standards

The basic design elements on which interfaces in the system are based Set by: - private standards: windows, iOS, etc. - Sponsored Consortia: DVD, BluRay - Non-gov't - Gov't ex: HTML, MP3, Bluetooth

VRI: Competitive Rarity

Valuable But not rare or inimitable

VRI: Temporary competitive advantage

Valuable and Rare But not inimitable

VRI: Sustained competitive advantage

Valuable and Rare and inimitable

VRI Framework

Valuable, rare, inimitable

Activities

Value chain/network

Direct Network Effects (Physical Networks)

Value generated by direct user interactions

Indirect Network Effects (virtual networks)

Value generated by users using complementary products increase in customer leads to increase in complementary services

Viability Costs

Value pro/rev model -> ARC + Scope -> Costs!

VARS

Value proposition Activities/resources/capabilities Realization (revenue model) Scope of enterprise - highly interdependent; all aspects must be aligned - new business model can start from change in any of the 4

Corporate Scope Dimensions

Vertical: value chain Horizontal: products/services Geographic

BCG Growth-Share Matrix

Want to move everything to the star to decide allocation of capital

Innovator's Advantage - 3 Part Test

Why leading firm doesn't pursue innovation Why innovation eventually beats leader's core business Why leaders can't catch up later

Vested Interest & Cannibalization

Within organization's resistance - manager's success rooted in old tech - high asset commitments to old tech - new tech explored within existing units Unwillingness to cannibalize existing business by investing in new tech

Limited Fit

acquirer ignores capabilities

Efficient Market Wall

acquirers only expected to make (risk-adjusted) market rates of return from M&A **Unless they can see unique ability to generate value

Value + Cost strategies

cost leadership strategy - low cost - broad target market Differentiation - high value - broad target market focused low cost - low cost - narrow scope - avoid customer segments/channels that are too costly to serve - ex: Ikea Focused differentiation - high value, narrow target - seen as premium - promotes exclusivity

Radical Innovation

creation of new tech **Current tech trajectory (high end)

Value-Creating M&A: Enhancement/Stretching

dev'p NEW capabilities

Combo of DomDesign + Interface Standards

ex: iOS, Windows, Android

Dominant Design

generally adopted config. that defines look, functions, etc. for product - typical way of designing - ex: touch screen on smart phones

Four potential challenges to sustaining competitive advantage

imitation (threat to rarity) replication (threat to rarity) non-durability (threat to value creation) non-relevance (threat to value creation)

competence enhancing innovation

innovations build on the firm's existing knowledge base **firm's capabilities (low end)

Product Life Cycle

introduction, growth, maturity, decline

Goal of strategy

long-run performance (profits)

Standards strategies: open vs. closed strategy

open: less control, less value capture, maximize value creation/market acceptance - the more open a strategy is, the more ownership the firm gives up closed: maximize value capture and control - better coordination

Acquisition

purchase/takeover of company (can be friendly or unfriendly)

Corporate Strategy

pursuit of competitive advantage through configuration and coordination of company's multi-market activities Involves decisions and actions about: - scope of firm, coordinating synergies across businesses, corprorate transactioins

Diversification Premiu

stock price of diversified firms is greater than comparable "pieces"

Diversification Discount

stock price of highly diversified firms is valued at less than the sum of their individual business units

Lock-in Users

users face switching cost due to investments into specific tech use porting tech to reduce costly complements