B AD 4013 (Bolino) Exam 1 Articles
Coca-Cola Case
Concentrate producers: blend common ingredients and flavors and ship mixture in containers to bottlers. Customer-Development agreements: bottlers use funds provided by Coke to secure shelf space with national retailers like Walmart Bottlers: bought the concentrate and add carbonated water and sweeteners, and then packages them into bottles and cans Creation of CCE: "Coca-Cola enterprises" which Coke created by buying up one-third of its bottlers in 1985 Retailers: supermarkets, fountains, super-centers Suppliers: caramel coloring, phosphoric acid, citric acid, and caffeine.
Describe (compare & contrast) the "blue ocean" and "red ocean" strategies. ("Blue Ocean Strategy")
Red Ocean: represent all the industries in existence today, or the known market place. Industry boundaries are defined and accepted and the competitive rules of the game are understood. (compete in existing market space, beat the competition, exploit existing demand, make the value/cost trade-off, align the whole system of a company's activities with its strategic choice of differentiation or low cost.) Blue Ocean: competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space. Demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. Created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers. (create uncontested market space, make the competition irrelevant, create and capture new demand, break the value/cost trade off, align the whole system of a company's activities in pursuit of differentiation and low cost.)
Briefly mention what might be the required elements of a good industry analysis ("The five competitive forces that shape strategy")
-Define the relevant industry (i.e. what products are in it, which ones are part of another distinct industry, what is the geographic scope of competition) -Identify the participants and segment them into groups (i.e. buyers, buyer groups, suppliers, supplier groups, competitors, substitutes, potential entrants) -Assess the underlying drivers of each competitive force to determine which forces are strong and which are weak and why -Determine overall industry structure, and test the analysis for consistency (i.e. why is the level of profitability what it is, which are the controlling forces for profitability, is the industry analysis consistent with actual long-run profitability, are more-profitable players better positioned in relation to the five forces) -Analyze recent and likely future changes in each force, both positive and negative. -Identify aspects of industry structure that might be influence by competitors, by new entrants, or by your company.
What are some of the critical questions a company might need to answer prior to diversification? ("To diversify or not to diversify")
-What can our company do better than any of its competitors in its current market? -What strategic assets do we need in order to succeed in the new market? -Can we catch up or leap frog other competitors at their own game? -Will diversification break up strategic assets that need to be kept together? -Will we be simply a player in the new market or will we emerge a winner? -What can our company learn by diversifying, and are we sufficiently organized to learn it?
Why does Porter argue in this article that operational effectiveness is necessary, but not sufficient for increased corporate performance? ("What is Strategy")
A company can outperform rivals only if it can establish a difference that it can preserve. Operational Effectiveness (OE) means performing similar activities better than rivals perform them. It is an important source of differences in profitability among competitors because they directly affect relative cost positions and levels of differentiation. In contrast, strategic positioning means performing different activities from rivals' or performing similar activities in different ways. (1) Rapid diffusion of best practices: competitors can quickly imitate management techniques, new technology, input improvements, and superior ways of meeting customers' needs. (2) Competitive Convergence: Competition based on OE alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition. After a decade of impressive gains in OE, many companies are facing diminishing returns as continuous improvement has drawn companies to imitation and homogeneity. Managers have let OE supplant strategy--the result is zero-sum competition, static or declining prices, and pressures on costs that compromise companies' ability to invest in the business for the long term.
Aldi Case
Aldi, a German based discount grocery store, has a unique operating model that makes it almost impossible for competitors to match price/quality. Founders realized that they could have lower prices than competitors if they continued to limit their own product selection to basics. They focused on low prices and efficient operations. Incredibly successful in Germany, entered US market in 1976 originally in the rural Midwest. Opened distribution centers to service their stores. 95% private labeled brands 1,400 items per store 17,000 sq ft per store In 2013, prices were 15-20% lower than Walmart and 30-40% lower than regional chain stores. "When you buy a can of peas at Aldi, you're paying almost entirely for the can of peas. Aldi doesn't need to tack on one more penny to pay for an army of stackers or piped-in music or fancy displays or check chasing or gimmicks or games. Your food dollar pays for what it's supposed to pay for: food." Aldi employees receive generous wages and benefits that are significantly higher than the national average. Trader Joe's: purchased by Aldi following similar principles but with local wines, specialty foods, including organic products at affordable prices. Competition: Warehouse Clubs (i.e. Sam's Club, Costco), Walmart Aldi's makes WAY more per product compared to Walmart (Aldi has 1,400 units / Walmart has 100,000 units)
Tesla Case
Elon Musk: Extraordinary entrepreneur, gets into trouble often with SEC, smoking pot, narcissistic behaviors Secret strategy part I: (1) build a sports car (2) use that money to build an affordable car (3) use that money to build an even more affordable car (4) provide zero-emission electric power generation options (5) don't tell anyone Secret strategy part II: (1) solar roofs (2) electric vehicle for all market segments (3) self-driving car (4) enable car to make $ when you aren't using it Production/manufacturing/supply chain frustrations with Model 3 vehicle. WAY underproduce relative to competitors (i.e. Ford, GM, etc.) Sold original cars for $50k below cost Avoids selling Teslas at dealerships. Instead sold at stores and online until last week, when they announced they're going to strictly online to cut costs. Challenges: (1) production runs and supply chains for Model 3 (2) lowering Model 3 cost while improving quality (3) Not cannibalizing Model S with Model 3 (4) Achieving autonomous driving and legal approval (5) keep demand for EV vehicles in low gas price environment and phasing out of $7,500 tax deduction
Explain how the government policy might impact the likelihood of a new entry in an industry? ("The five competitive forces that shape strategy")
Government policy can hinder or aid new entry directly, as well as amplify (or nullify) the other entry barriers. Government directly limits or even forecloses entry into industries through, for instance, licensing requirements and restrictions on foreign investment. Regulated industries like liquor retailing, taxi services, and airlines are visible examples. Government policy can heighten other entry barriers through such means as expansive patenting rules that protect proprietary technology from imitation or environmental or safety regulations that raise scale economies facing newcomers. Of course,government policies may also make entry easier—directly through subsidies, for instance, or indirectly by funding basic research and making it available to all firms, new and old, reducing scale economies. Entry barriers should be assessed relative to the capabilities of potential entrants, which may be start-ups, foreign firms, or companies in related industries. And, as some of our examples illustrate, the strategist must be mindful of the creative ways newcomers might find to circumvent apparent barriers.
What does Henderson say about natural competition and strategy? ("The origin of strategy")
Natural competition: For millions of years NC involved no strategy. Works by a process of low risk, incremental trial and error. Small changes are tried and tested. Those that are beneficial are gradually adopted and maintained. No need for foresight or commitment, what matters is adaptation to the way things are now. Often it cannot keep up with a fast-changing environment and with the adaptation of competitors. Success usually depends on the culture, perceptions, attitudes, and characteristic behavior of competitors and on their mutual awareness of each other. Strategy: A deliberate search for a plan of action that will develop a business's competitive advantage and compound it. It is the management of natural competition. Strategic competition: (1) Ability to understand competitive behavior (2) ability to use this understanding to predict how a given strategic move will re-balance the competitive equilibrium (3) resources that can be permanently committed to new uses even though the benefits will be deferred (4) ability to predict risk and return with enough accuracy and confidence to justify that commitment (5) willingness to act
McDonald's Case
Once a revolutionary fast-food chain has struggled as of late. While they benefited from the 2008 recession, they haven't done well domestically since. Customers are confused by complex menu offerings, distrustful of the quality of ingredients, frustrated with how long it takes to get their food, and angry at the company's "exploitative" labor policies. At their founding, McDonald's only served burgers, fries and drinks to streamline their operations. After being bought out by Ray Kroc, Kroc explained his management philosophy as a three-legged stool: (1) parent corporation (2) franchisees (3) McDonald's suppliers Kroc encouraged local owners to be entrepreneurial with new menu items, but to maintain four main principles: quality, service, cleanliness, and value. Several bouts of unsuccessful new menu items and shifting strategies left customers confused. There are significant health concerns regarding McDonald's--healthier menu items increases supply costs for restaurants. Competitors: Burger King, Wendy's Subway, Taco Bell Current Challenges: menu, product quality/perceptions, appealing to millennials, labor (staffing issues), international markets Lasting Challenges: How to provide a product that balances quality, speed, and affordability? How to innovate the menu without creating unnecessary menu scope? How to respond to competitive threats without losing the company's core identity? How to prevent complacency, in spite of many years of relative success. "We don't need to be a different McDonald's, we just need to be a better McDonald's."
Why does Porter suggest that a company 's strategic plan depends on its capability to create a unique position, make clear trade-offs, and tighten fit? ("What is Strategy")
Unique positions: competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. A unique position is not sufficient in guaranteeing a sustainable advantage. A valuable position will attract imitation in two ways: (1) Repositioning: matching superior performance (2) Straddling: seeking to match the benefits of a successful position while maintaining an existing position Clear trade-offs: A strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. A trade-off means that more of one thing necessitates less of another. Trade-offs create the need for choice and protect against repositioners and straddlers by purposefully limiting what a company offers. Tightening fit: competitive advantage comes from the way its activities fit and reinforce one another. Fit locks out imitators by creating a chain that is as strong as its strongest link. The competitive value of individual activities cannot be separated from the whole. If there is no fit among activities, there is no distinctive strategy and little sustainability.
How might managers use insights from game theory to benefit the organization? Understand and briefly explain the ideas of win-win strategy, changing the game of business, changing the players, changing the added values, changing the rules, and changing the scope. ("The right game: use game theory to shape strategy")
Win-win: the approach is relatively unexplored, thus there is greater potential for finding new opportunities. Others are not being forced to give up ground, they may offer less resistance to win-win moves. Also, win-win moves don't force other players to retaliate, the new game is more sustainable. Lastly, imitation is beneficial, not harmful. Coopetition: looking for win-win as well as win-lose opportunities. Keeping both strategies in mind is important because win-lose strategies often backfire. Changing the game of business: PARTS (P) Players (A) Added values (R) Rules (T) Tactics (S) Scope Game of Business: successful business strategy is about actively shaping the game you play, not just playing the game you find. Players: Coke enticed Monsanto to develop a generic sweetener to encourage Nutrasweet to lower prices. Neither Coke nor Pepsi wanted to be the first to take the NutraSweet logo off the can and create a perception that it was fooling around with the flavor of its drinks. Thus, they created competition to lower prices. Also, pay-to-play cell phone example for company buyout. Added-Values: Card game example, Adam burns some of his cards to destroy some of the added values of the other players. The idea of raising your own added value is natural. Less intuitive is the approach of lowering the added value of others. Rules: One price to all example with Kiwi airlines. By staying small, the newcomer turns the incumbent's larger size to its own benefit. Scope: A game in one place can affect games elsewhere, and a game today can influence games tomorrow. You can change the scope of a game and you can expand it by creating linkages to other games, or you can shrink it by severing linkages.