Strategy Test

Blue Ocean Strategy

An approach where firms seek to create and compete in uncontested "blue ocean" market spaces, rather than competing in spaces and ways that have attracted many, similar rivals. -comp is irrelevant -pursue diff and low cost structure as opposed to one or other -create and capture new demand However, the Game can reset often •Must anticipate customer needs •Multiple dimensions of competition •Illustrates Henderson's "web of competition" •Market leaders teach customers what to demand •1st mover advantage can shift quickly •Challenges our definition of 1st mover advantage If this area is truly blue ocean, managers have more latitude to experiment and make bold moves. This is because of the absence of competitors. You can imagine that an incorrect assumption on competitor presence could lead to disaster. One scenario could be a tough competitor was not seen and quickly outmaneuvers the company. Ways to encourage innovation: •What are the long-held core beliefs in the industry? •What underpins the most important core belief (e.g., customer interactions, ways of operating)? •Can we overturn this underlying belief? •Are there approaches in other industries that can be borrowed? •Does this meet the "eye test" on being doable? Take-aways: Most helpful with decision-making process Business re-framing and challenge of traditional assumptions can prompt/reveal new opportunities Must be careful to avoid traps such as pursuit of dual strategies Definition of competitive space drives "blue" versus "red" conclusions Wawa ex: •"...fundamentally spoke to who we were and what we aspire. We realized that we are absolutely Blue Ocean...it's really about value innovation—pursuing differentiation and low costs, not one or the other—as we looked at the activities and milestones in our history." page 7 •"...gave us a systemic way to address the challenge we confronted to open a blue ocean of new growth for the company." page 7 "To make a blue ocean shift, Wawa would redefine itself from a convenience store with gas that also sold food to a quick service restaurant, challenging current business ideas. •And as it did so, new ideas came into focus." page 10

How companies compete

partnerships, market for corporate control, market for vendor ralationships, market for ideas, labor market, capital market.

Activist investors

An activist investor is an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors. Companies that are mismanaged, have excessive costs, could be run more profitably if taken private, or have other problems the activist investor believes they can fix are often targets for activist investors.

Operational Effectiveness

Any kind of practice which allows a business or other organization to maximize the use of their inputs by developing products at a faster pace than competitors or reducing defects, for example Assimilating, attaining, and extending best practices. Doing things better and better. Validating and executing

The Debate and Moats

Buffett once described his strategy as looking for "economic castles protected by unbreachable moats," measurable competitive advantages that give an organization a layer of security against encroachers. But during an analyst call, Musk took a jab at the widely-praised Buffett, criticizing the moat concept. "If your only defense against invading armies is a moat, you will not last long," he said. Buffett's retort: "There are pretty good moats around." For corporate leaders, of course, the debate involves more than just words, it centers on a key strategic approach. Ultimately, experts say, they both may be right. "In today's marketplace, the competitive landscape is changing so fast that leading requires a platform of innovation," says Tierney Remick, vice chairman and co-leader for Board and CEO Services with Korn Ferry. "For some that could mean innovating around their core and being as productive as possible. For others, that could mean moving into new areas and creating the agility to meet new market demands." Or, as Buffett also said in response to Musk's dig, "Elon may turn things upside down in some areas. I don't think he'd want to take us on in candy." Berkshire Hathaway's stake in See's Candies is among Buffett's longest-held and most profitable investments. Musk promptly shot back in a tweet that he was going to start a candy business and surround it with a moat filled with candy. More telling than Buffett and Musk's jabs, however, is what they reveal about their leadership styles. "Musk is driving a level of innovation because that is what he founded his companies on, he can miss earnings and be OK with that," Remick says. "That's a completely different business model than a traditional CEO who has to hit quarterly numbers, which is where a moat strategy that keeps things moving with focus and manages costs versus innovation comes into play." Both approaches have their virtues. Both approaches can be successful. Most importantly, experts say, both approaches are needed to maintain the level of agility and productivity the market demands. "It takes a highly complex persona who can conduct the corporate orchestra to push the boundaries of value creation," says Chad Astmann, co-head and global sector leader of Korn Ferry's Asset Management and Alternative Investments practice. "Increasingly, this is simply a necessary element of business survival rather than the product of a rare 'unicorn.'" Importantly, leaders have to bring in other people to build the moats, innovate, or both. "The companies that are innovative have two key ingredients: They attract and retain highly creative people and they ensure their leaders know how to effectively manage these creative people" says Jamen Graves, a senior client partner with Korn Ferry specializing in leadership development. "When these two ingredients work well together, then innovation gets into the company DNA, its core processes, its culture, and endures from one generation of leaders to the next. **The term economic moat, popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. **Best approach depends on pace of industry change • Moats are powerful • Speed can also be powerful (but only if also being effective!) Buffett (a value investor) is looking for long-range returns Musk's success has been in high velocity industries with high growth potential • Nonetheless, Tesla is still actively trying to build moats — it pays to be an informed skeptic about what CEOs say

How to create Business value

Increase Sales: New customers § Additional transactions (same customers) § Higher average revenue per transaction Cut Costs: Eliminate inputs § Lower processing costs Cost Avoidance (e.g., Regulatory Requirements) Maintain Status Quo (e.g., Match Competitors) Intangibles: Customer Satisfaction, Employee Satisfaction, Brand Equity

Icarus Paradox

Intended to caution managers against becoming overly confident with success. Feeling invicible can lead to failure.

Value Creation and Capture

Performing activities that create and capture the value of goods or services to suppliers(willingness to receive-moeny from firm for supplies), firms, and consumers(willingness to pay with price set by firm).

Deciding to compete upstream and buy a company-like the nutella example

Purchase decision has clear implications on ability to compete. Consumer market price and quality should be considered early-message to market. Controlling price will not resolve the overall concern for price fluctuations (i.e., farming is naturally cyclical Important to think about how competitors (and regulators) will react Location seems to make this a scarce resource 1.Starting a new farm would be very expensive and risk product quality level

mergers and acquisitions

M&A transactions are a complex set of decisions that can provide strong indications on a company's strategic vision. M&A transactions intended to create value. This means that the two companies are more valuable together than apart.. The acquisition market (as known as the market for corporate control) competition. The companies pursue these target companies with specific objectives in mind. **It can be helpful to think of these transactions as an effort by the acquirer to find a missing piece of the puzzle. This means that the acquirer has a problem or void (e.g., weak distribution system, out of date technology), and the target company is a remedy to the problem. **M&A transactions can be both a response to and initiators of change. Irrespective of the sequence, these transactions are concerned with competition. Most companies do not engage in M&A as a normal course of business (private equity firms are an exception). These corporate decisions are instead a means of accomplishing something else. The reason is typically improving itself to better compete in the marketplace. The following examples show two things: (1) this is a set of companies making bold moves that will transform the industry, and (2) the companies are thinking about the future and how to strike the right configuration in preparation. **Strategy is very relevant to M&A transactions because it is typically the original motivation. This means that management must think about the blended strategy. A key question is whether the purchase enhances the existing strategy or blends to create a new strategic theme/market position. Either is fine, but management should be intentional about the outcome. •To generate a competitive advantage that neither firm could obtain alone. •Uniqueness is always tough, but now we're attempting to capture it in the open market. •Complementary assets (i.e., missing puzzle piece) must be located that generate 2+2=5. Given an objective of going to a new business or capturing some type of resource (e.g., an emerging technology), managers have a choice of creating the opportunity for themselves (i.e., organic growth) or purchasing an existing company. This listing shows some of the motivations for purchasing a target company. The two red items are bad, potentially value-destroying reasons. Reasons to acquire: •Increased speed to market (CEO tenure & pressure?) •Easiest means of diversifying (turnkey; easy transaction but not necessarily value creation) •Overcome entry barriers (e.g., established brands, talent, R&D) •Avoid cost and risk of new product development These two are bad, potentially value destroying reasons: •Managerial Hubris •Agency Problems Price is always a key concern: •Don't bid away your combined future profits at the time of purchase! •Definition of synergies varies based on the bidder •The winner's curse can be avoided if the synergies are unique to only you. That is, private synergies •Search for information asymmetries (i.e., other bidders aren't aware of the value potential) High premium isn't necessarily a bad deal. Key Points: •Much of the activity is irrational •Shifting basis of competition is often key •Many deals can be explained by mimicry •Many ways to define success •Think ahead on means of value creation (i.e., be specific on integration plans) •Think of acquisition as another capital budgeting project •Synergy must exceed premium!! •Good acquisitions start with good strategy •Discipline is key!!! They are hard to do. M&A steps: ID problem to be solved, search for target company, find fit, value target company, negotiate price, due diligence, secure regulatory approval, deal closing. Integration process: ·Acquisition decision-making processes can be improved independent of the deal content. ·Have an integration plan BEFORE the transaction ·A preplanned blueprint forces attention to the details and logic ·Use performance feedback to guide adjustments ·Move forward quickly—but thoughtfully ·Pick the "low hanging fruit" first ·Attend to both operational & strategic integration (+ ongoing bus.) ·Assume that environment continues to change Short-term Acquistition problems: •Stumbles due to poor due diligence •Overestimation of synergies due to unexpected integration obstacles (e.g., clash of cultures, mgmt flight) •Employee anxiety and brain drain When synergies are overestimated, overpayment will result (a.k.a, the winner's curse). Long-term aquistition problems: •Overdiversification •Managerial energy absorption •Excess debt •Too large (complexity) •Substitute for innovation When synergies are overestimated, overpayment will result (a.k.a, the winner's curse). M&A performance Measures: •Market Measures (event studies) •Accounting Measures Øreturn on ____ ØEPS Øcash flow •Subsequent Divestitures •Recent studies on customer satisfaction (50% @ 2 yr.) •Self-assessment (would you buy again?) Central to the M&A discussion is when and how these transactions create value. This listing shows the primary measures. The market measure is most commonly used to assess success. The essence of the market measure is examining the company's share price movement relative to some type of baseline. This answers the question of how the post-deal company looks compared to a projected no-deal company (i.e., how would the company have performed otherwise). Deals and why they fail: •Top-line obsession—mgrs oftentimes misunderstand the true company problem and choose the wrong solution •Stock price exploitation/cash rich—available currency can prompt managers to go shopping •Grooved thinking/herding behavior—mgrs may simply follow the logic exhibited by competitors •Personal commitment (need to save-face)—executives sometimes have difficulty reversing/changing their mind •Deal heat (wrong prize, aka winner's curse)—mgrs sometimes get caught up with emotion & fail to walk away from a bad price •Unwarranted trust in interested parties—mgrs may become overly reliant on fin'l advisors who benefit by closed deals Regulators: Regulators have a similar core set of objectives. Though the focus and means of enforcement differ, they are concerned with protecting competition and consumers.The specific reasons for being blocked by regulators vary, but all can be connected directly or indirectly to implications upon competition. Ex: Tax Inversion deals: The U.S. government has closed the loophole (but not necessarily forever), but historically companies have has a specialized motivation to purchase foreign companies in order to lower their tax rate. The purchase allowed them to re-domicile the company's headquarters. Congress passed a law in 2016 to reduce the incentive, but the discussion lives on. Pharma: Pharmas have struggled with discovery of new drugs. Pursuit of successful drugs in the acquisition market is dangerous because the valuable drugs are priced into the deal. In this Bristol deal, the 54% premium represents a huge obstacle to creating value.

Franchising

The franchise story starts with an entrepreneur who wants to start a new business. The choice is then between starting a new business (i.e., new brand/logo, new approach) or buying into a franchise family. The decision to buy into a franchise can be expensive, but comes with many benefits. There is an upfront fee paid to "join" the family/network, and quarterly royalty fee (computed as % of sales) paid along the way. In exchange, the entrepreneur gets a "business coach" to train and guide them. Franchisors must work hard to achieve the status to gain such attractiveness (i.e., local entrepreneur wants to emulate them). At its core, franchising is selling your "recipe" to running a successful business. It is an opportunity to replicate yourself and grow very quickly. There are hazards, but a desirable business goal. •Powerful growth vehicle; very fast •Introduces new set of risks •Must protect the key sources of advantage •Brands are tough to build, but can be quickly lost •Communication content and chosen media can be a key part of strategy Franchisor Advantages (versus company owned store): •Rapid growth and location breadth •Shift of risk •Immediate return (initial fee) •Reliable cash flow (royalty payments) •Lower human resource commitment •Lower capital requirements •Units are naturally motivated •Deep local mkt knowledge Franchisor disadvantages(versus company-owned store): •Competition w/ other business concepts •Reputational risks (shared brand); free-rider problem •Complex network coordinating tasks •Quality control structure (new skill) •Building of inter-org'l trust •Management of communication •Formal training on company operations Franchisee advantages(versus developing independent brand): •Proven business format & brand •Experienced guidance •Focused training (versus general business) •Efficient use of capital (not trial & error) •Professional marketing campaigns •Centralized purchasing & product innov •Network level data & idea exchange Franchisee disadvantages(versus developing independent brand): •Shared brand/business identify •Restrictive controls (even other bus opps) •Franchisor-friendly agreement •Initial lump sum pmt can be a burden •Royalty payments from the top •Tough to assess true business prospects •Typically costly to exit •Involuntary policies can impact π From online: Advantages: Franchises offer the independence of small business ownership supported by the benefits of a big business network. You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model. Franchises have a higher rate of success than start-up businesses. You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type. Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support. Disadvantages: Buying a franchise means entering into a formal agreement with your franchisor. Franchise agreements dictate how you run the business, so there may be little room for creativity. There are usually restrictions on where you operate, the products you sell and the suppliers you use. Bad performances by other franchisees may affect your franchise's reputation. Buying a franchise means ongoing sharing of profit with the franchisor. Franchisors do not have to renew an agreement at the end of the franchise term. *Franchising is seen by many as a simple way to go into business for the first time. But franchising is no guarantee of success and the same principles of good management—such as informed decision-making, hard work, time management, having enough money and serving your customers well—still apply.

Business Model

describes the rationale of how an organization creates, delivers, and captures value. What's the value proposition? How does this business make money? What is the architecture of the revenues? •Refers to generic approach (i.e., across companies) •Rough sketch of how the company will make money •Built around the product/service idea •Key audience is investment community •Many options available; categories? Business models do not change often, but managers should keep a continual eye of the design. The concern is staying relevant in the marketplace. BM should be reviewed & updated when: •Product doesn't fit old approach •Product has entered a new stage in its product life cycle •New technology threatens old design •Filing a key internal position •Major shift in the economy •BM choice should fit strategic objectives •BMs provide the fundamental design for making money •Stories are powerful (and more frequently used today), but follow-through is vital •BM choice comes *before* strategy Helps managers identify key problems and is a key source of learning for them. Categories: •Razor & blades (aka, bait & hook): easy-in, but expensive follow-ons ØH-P's printers, Keurig K-Cups, PlayStation & Xbox •Network effects/installed users: critical mass affects growth ØSnapchat, FaceBook, Venmo, Waze, original cellphone plans •One-stop shopping: cut customers' search costs ØAmazon.com, W-M supercenters, Citigroup? •Freemium: free entry w/ natural up-grade to premium services ØSkype, Pandora, Dropbox •Subscription: members only and inconvenient to leave ØeHarmony, Dollar Shave Club, NetFlix, healthclubs •Multi-level marketing (aka, pyramid): goal is to recruit sellers ØAmway, Herbalife, Cutco, Mary Kay Cosmetics, Primerica •Disintermediation: cut out the "middle man" ØDell, Geico, Southwest Airlines (originator) •Fulfillment: interface with cust. & fill order on behalf of others ØAmazon.com, including Zappos, MusicToday •Category Killer: huge product offering in a narrow department ØHome Depot, OfficeMax, PetSmart, Barnes & Noble, Toys R Us •Warehouse Club: membership-only bulk retailer ØSam's Club, BJ's Wholesale Club, Costco •Platform-based: connecting parties for transactions or tasks ØUber, Airbnb, Lending Club, Instacart, Taskrabbit, Rover Further Examples: •Wal-Mart: applied the story of supermarkets to selling clothing, appliances and other. •Amazon.com: applied the story of Wal-Mart to online products. Business models are important to building (or rebuilding) the company in preparation for competition. A basic difference between business strategy and business model is that modeling assumptions describe how the business works and what it does. Business strategy is a set of assumptions about how your company can outperform the competition

Resources

Tangible or intangible (reputation, patents, relattioships with suppliers or employees) , inputs used in the firms production process (which is used to generate revenue).

Tableau and visualization

Tableau is used to analyze data, generate insights, and communicate insights. A good visualization (using Tableau) reduces the time to insight. For some applications, eliminating all distractions with a very simple viz can be effective: Best practices for visualizations that communicate insights: State your key point • Show your key point • Be complete yet concise • Avoid unnecessary clutter • Acknowledge data source. All elements should add to making the point § To the extent possible, make all figures "stand-alone" § Minimize "time to insight" for a viewer in your target audience, know your audience, *Data visualization is not a personal preference, to be done "just in case some people are more visual." It is a necessity! § The previous slide is a classic example of how some insights can only be found through visualization. § The first step in understanding your data should always be to examine it visually. Visualization can play a critical role in helping you figure out data quality issues and what the interesting questions are. § Remember the picture superiority effect: pictures are retained at much higher rates than words. Tableau features: Dimensions contain qualitative values (such as names, dates, or geographical data). You can use dimensions to categorize, segment, and reveal the details in your data. Dimensions affect the level of detail in the view. Measures contain numeric, quantitative values that you can measure. Measures can be aggregated. When you drag a measure into the view, Tableau applies an aggregation to that measure (by default). Show Me highlights the visualization type that best matches the data .twb is an XML document. It contains the information about your sheets, dashboards and stories. The TWB file references a data source file such as Excel or TDE, and when you save the TWB file, it is linked to the source. The most important thing to remember about TWB files is that they don't contain any data - if you want to share your workbook, therefore, you will need to send both the Tableau Workbook File and the data source file.A .twbx file is a Tableau Packaged Workbook, meaning it is the original .twb file grouped together with the datasource(s) in one package. .twbx files can be considered analogous to specialized zip files, in which these "zip" files contain all the information necessary to work in Tableau. The primary advantage to using .twbx files is that analysis can be performed without network/internet connections to your data because your data is already present on your computer in this packaged file. Drill down: When we are working with date fields in Tableau, there is often a need to drill down into it and get a much higher level of granularity. For example, while looking at the data year-wise, we may see some trend and want to further explore it and look at monthly trends or even quaterly trends. Tableau has great hierarchy options, however, when you are publishing a dashboard, aesthetics matter. Levels: Date parts: Date parts give you data aggregated to the level of a specific part of a date, such as the month of May for any year, or the 8th day of any month., date value, exact date Date value: Date values give you the actual date, truncated to a specific level, such as May 2015 or May 8, 2015. Exact Date: To get the most granular level of detail, which is also known as row-level or record-level data, you can select Exact Date. Data filtering can help eliminate observations in an analysis that may be undesirable or contain errors. Filtering is nothing but removing some scope of data from a dataset. Filters can help minimize the dataset size for efficient use, eliminate irrelevant dimension elements, clean up underlying data, set date ranges and measures as required, simplify and organize the data, etc. Grouping in Tableau is grouping multiple members/values into several groups which will create a higher category of the dimension. Creating a set in Tableau is putting multiple values IN my a single set depending on a condition or by manually picking them. Tooltips are details that appear when you rest the pointer over one or more marks in the view. Tooltips also offer convenient tools to quickly filter or remove a selection, select marks that have the same value or view underlying data. You can edit the tooltip to include both static and dynamic text. You can also modify which fields are included in the automatic tooltip. Tableau dashboards: Two Types of Dashboards: Exploratory discovery (generating insights) § Give users tools to find the answer § Allows analysts and power users to find new patterns and relationships Directed discovery (communicating insights) § Show the answer to a pre-known question § Options to change basic parameters § Suitable for general consumption by a wide variety of users Dashboards - Supporting Attributes : Information is presented using small, concise, direct, & clear display of media § Clearly stated messages § Each point should be limited to the space needed Customized:tailored to the needs of a specific group or individual Consistent layout § Data changes over time § Interface is consistent (until it's time for the next revision) Hover — "mouse-over" Select — on a section Highlight — Highlights data of interest Filter — Works like FILTER on a worksheet

Process metrics

Vital for mangrial analyses and internal decisions

Three Means of growth

•Internal/Organic/Greenfield •Change in ownership •Partnerships

Industries

A group of business that produce a particular kind of good and is named after its principal product. Ex: the Wine Industry. All companies invovled have similar elements: production methods, sales channels, required skill/talent, and consumer satisfaction since they produce similar goods.

Digital Ubiquity (appearing everywhere and being very common)

Characteristics of "digital": Nonrivalrous-can be shown to millions at the same time. Perfect reproduction (exact replication infinite times): Digital copy same as original. Low incremental costs: Marginal cost of production approaches zero-doesnt cost anything to make an additional unit. Digital ubiquity enables smart connected products. (however not all products are good digitally) Connectivity creates new risks and opportunities: Developing ecosystems in the "internet of things". Interconnectivity issues.

Henderson's Central points

Every business must have a unique advantage to survive and not fail-cannot be the same as others Strategy is the mechanism by which companies finesse the evolutionary process.

Pathway to competitive advantage:

How do we generate new ideas for business? How do we translate our objectives into strategy? How do we formulate the detailes of a winning strategy? How do we secure the right inputs for our operations? How do we build a business around our product idea?"

A platform

a business model that creates value by facilitating exchanges between two or more interdependant groups, usually b/w consumers and producers.

Business Model Canvas

a diagram of how a company creates value for itself and its customers. Helps identify blind spots and key areas to focus on for entrepreneurs and companies. Is used as an analysis tool to understand major organizational changes. 9 key areas: value proposition, customer relationships, customers, costs, key resources, costs, key acitvities, key partners, channels, and revenue.

Two-sided Market

meeting place for 2 sets of agents who interact through an intermediary or platform. Getting both sides on board is fundamental for development and success of platforms and to create pricing strategies.

Vertical Integration

Driven by: Lack of trust, lack of availability, wanting to own the entire value supply chain. •Advantages: ØIncreased complexity for defense (social ambiguity) ØEnhanced ability to differentiate (integrative) ØReduced input costs ØImproved/reliable input quality ØReliable supplies Better coordination/prioritization, and efficiency •Disadvantages: ØIncreased complexity (bad) or bureaucratic costs ØBroader skill set is needed ØReduced pressure to innovate ØTough to keep up with technological changes ØHigher capital needs ØChannel conflicts (compete with customers?) •Now unpopular, what changed? ØShift in nature of industries to service ØRapid technological changes ØHeightened strategic minimums on equipment investments ØIntense specialization of tasks Fierce competition has forced narrow strategies **In short, backward integration involves buying part of the supply chain that occurs prior to the company's manufacturing process, while forward integration involves buying part of the process that occurs after the company's manufacturing process. Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.

Cases are used to help identify the Rational problem solving process of:

Problem awareness, problem definition, decision making, not as important but still, action plan implenmentation, follow thru.

Megatrends

1.Large change with sweeping effects 2.Not simply a fad 3.Shifts nature of competition 4.Can reshape/transform society & industries 5.May exhibit differing impact across markets 6.May translate to good or bad 7.Future-oriented (i.e., not historical change) EX: 1.Demographic change 2.Rapid urbanization 3.Climate change and responses 4.Diffusion of technological breakthrough 5.Interest in slower pace of life (aka minimalism) 6.Shift in global political & economic power 7.Increased concern for wellness Managers try to predict changes; competitive advantages are easier when opportunities are pursued before competitors. However, failure to predict trends is very hurtful. *In times of crisis, it's easy for orgs to default to old habits—but those are often the times in which new approaches are most valuable. As companies position themselves for the new normal, they cannot afford to be constrained by traditional information sources, business models and capital allocation behaviors. Instead, they must highlight anomalies and challenges mental models, revamp their business models and invest their capital dynamically to not only survive the crisis but also thrive in the post-crisis world. *•become more agile •take on changes that once seemed daunting •reimagine organizational culture •rethink work plans and productivity •learn from and rapidly correct mistakes •reposition for future growth •most important, refocus on core goal •Market upheaval can clarify keys to success •Crisis context can loosen strongholds and create opportunities •Individual company can nudge change in its favor •Confusion & complexity can sort out weak players (e.g., mgr'l skill, power of resources)

core competencies

A unique set of resources and capabilitities that serve as a competitiive advantage against rivals Unique because they cant be intimidated and are valuable. They are unstable- new substitutes may emerge, market trends may shift, consumer preferences may change, competitor skills improve. THey are at the core of strategic decision Creates competitive advantage

Organzational value:

Describes the core ethics or principles which the company will abide by, no matter what .people, technology, process, Information technology drives value to stalk holders. IT: productivity= outputs (add value)/inputs (cut costs)

Excel

Excel PivotTables are useful To explore data § To summarize data by category § To generate tables (to use in reports) They are not as useful for ... § Analyzing complex relationships § Analyzing data with lots of categories Low data quality is a constant issue. Data cleaning necessary for most data sources Data cleaning is part of ETL process: extract, transfer, load § Excel is an effective manual tool for small data sets § Automated tools (e.g., programming) more frequently used § Tableau offers some built-in functions for this VLOOKUP stands for 'Vertical Lookup'. It is a function that makes Excel search for a certain value in a column (the so called 'table array'), in order to return a value from a different column in the same row.

Capabilities

Firms skill at deploying its set of resources toward acheiving a competitive advantge. Its ability to integrate and put it into productive use. Ex: Ability to motivate employees, supply management chain techniques.

Visio

Simple templates and connectors that help visualize a business process. Helps to communicate, diagnose, and documents existing practices. Helps identify improvements Cross Functional Flowchart: Swim lanes: separate functional areas. Groups: make conceptional association between multiple elements. Roles (Not specific people): Ex: accounting department, customers.... Activities: a process or task(s) that occur over time and transform inputs into outputs-depicted using a rectangle. Flows: represents a movement of data/materials. Arrow points in the direction of the flow. Input - a flow that is transformed or consumed by a process or system Output - a flow that is produced by a process or system Gateways: used to model the decision points with a question. Black hole: process that has inputs but no outputs Miracle: a process that has output but no input Gray hole: process that has insufficient data input to produce the outputs

Internal Environmental Analysis

Used to identify and evaluate a sustainable competitive advantage, one that cannot be quickly imitated or substituted- a key part of strategic thinking.

Artisanal

a person or company that makes a high-quality or distinctive product in small quantities, usually by hand or using traditional methods: our favorite local food artisans

Business Analytics

the process of using data to aid in the decision making that generates business value. How to extract value: Capture: • Gather data from various sources • Preprocess the data • Extract pertinent information Understand: Remove noisy data • Perform advanced analytics; opinion mining and sentiment analysis, topic modeling, social network analysis, and trend analysis Present: Summarize and evaluate the findings from the understand stage • Present the findings • Apply it to extract value Data directly impacts what questions are easy or hard to answer § Some ways of visually presenting data are more effective than others There are common errors that lead individuals and groups to make poor decisions § Technology can sometimes make those errors more likely § Technology can also help overcome those common errors BA phases and cycle(hindsight to insight to foresight or information to optimization): Descriptive Analytics: what happened? Diagnostic Analystics: why did it happen? Predictive Analytics: what will happen? Prescriptive Analystics: how can we make it happen?

Primary goal of a Firm

•Locate a position within an industry where your firm can successfully minimize and/or defend against the influence of environmental factors (Macro environment). To do this, find competitive adv.

Basis of Competition

•Overall structure is altered •Changes rules/nature of the "game"- Industry Life Cycle •Applies to all in the space •Rules/nature of the "game"; applies to all in the space •Algorithm of the "Invisible Hand" (a.k.a. the sorting mechanism) to help decision making. •Typically multi-dimensional •Companies use different weapons to play the "game" (i.e., there can be many sources of comp. advantage) •Mgrs MUST understand what is important!! EX: competition between Apple and Samsung. The iPhone and Galaxy are viewed by consumers (the market arbiters) as directly competing choices. As a consequence, the two companies are continually trying to improve the product to outcompete the opponent. Note that some moves are merely an effort to keep up (i.e., responding after the minimum has been reset) and other moves are intended to outdo the opponent. Car Example: Consumers Define the "Game" •What did consumers expect from a car in 1970? •What distinguished a car from the others? •How did marketers appeal to consumers? •What has changed? Why?

Types of Partnerships

•Alliances--Firms contract to blend skills (marketing, distribution, R&D) on specific project/product, but no separate entity Øe.g., Airline alliances, Blackberry-Samsung •Licensing--Firm purchases the right to mfg or distribute product. Øe.g., UVA merchandise, Official beer of the NFL, Eddie Bauer Explorers •Joint Ventures--New legal entity is created for a specific project/product with joint ownership by the partners Øe.g., SonyEricsson, HULU, Dow Corning, Softcard (AT&T+T-Mobile+Verizon)

Three means of value creation

•Economies of Scale--efficiencies that arise from the expanded production of a specific product •Economies of Scope--occur when a given bundle of resources are used in joint production of two or more products •Market Power--occurs when a market participant has the ability to influence price, quality and product naturecus on reducing competition and building buying power)

Chandlers Logic for Success

•Economies of scale (a proportionate saving in costs gained by an increased level of production) and scope (a proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.) are key •Comp advantage can be short-lived, moving first can be key •Invest in marketing, products & prod'n processes, talent and distribution systems •Scope expansions s/b into closely allied businesses •Diversification can dilute focus •Corporate re-structuring can be destructive •Management knowledge is important •In sum: big, broad, focused, fast, forward-looking & professional

Type of aquisition pursuits (from very easy to very difficult for acquirer to purchase)-first few are more common

•Friendly offer—Mgmt and Board of both agree to deal •Enhanced offer—Acquirer makes a better offer •Bear hug—Acquirer makes VERY strong offer (overpay); prelude to hostile move; law suit is common •Hostile takeover—Unfriendly; offers resisted by mgmt. and board; appeal directly to shareholders •Market sweep—Purchased directly in open market; rare and very difficult to execute

Upstream competition

Companies compete for scarce early stage resources- very limited and high quality inputs.

Activtity system (strategy) elements:

Complmentary, reinforcing(reinforcing elements build a powerful strategy, consistent and work in harmony, thematic, unique. True Strategies are complex and consistent. Success brings about more competition. Obstacles to imitation impact growth.

Role of an Analyst

•Work for the focal firm •Locate sources of competitive pressures •Identify how the change impacts us •Focus on the future •Be careful with business definition

SWOT analysis

Strengths: capabilities/characteristics that allow the company to perform well. Weaknesses: capabilties/characterisitcs that prohibit the company from performing well. Opportunties: favorable trends, forces, events, and ideas. Threat: possible threats or forces outside of the companies control that could be dangerous. S&W are internal(the firm) and are examined with competition. O &T are external(environment) and are attributed to the environmental factors unique to the company Porter: Analysis of the external environment in order to better understand the drivers of success/failure.

SQL

Structured Query Language SELECT List the columns (and expressions) that should be returned from the query FROM The table(s) or view(s) from which data will be obtained WHERE The conditions under which a row will be included in the result GROUP BY Categorization of results HAVING Conditions under which a category (group) will be included ORDER BY Sorts the result according to specified criteria Ex: Show description and price of products with standard price less than $275 SELECT ProductDescription, ProductStandardPrice FROM Product_t WHERE ProductStandardPrice < 275

The Hype Cycle

The Gartner Hype Cycles provide a graphic representation of the maturity and adoption of technologies and applications, and how they are potentially relevant to solving real business problems and exploiting new opportunities. Gartner Hype Cycle methodology gives you a view of how a technology or application will evolve over time, providing a sound source of insight to manage its deployment within the context of your specific business goals. Each Hype Cycle drills down into the five key phases of a technology's life cycle. Innovation Trigger: A potential technology breakthrough kicks things off. Early proof-of-concept stories and media interest trigger significant publicity. Often no usable products exist and commercial viability is unproven. Peak of Inflated Expectations: Early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not. Trough of Disillusionment: Interest wanes as experiments and implementations fail to deliver. Producers of the technology shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters. Slope of Enlightenment: More instances of how the technology can benefit the enterprise start to crystallize and become more widely understood. Second- and third-generation products appear from technology providers. More enterprises fund pilots; conservative companies remain cautious. Plateau of Productivity: Mainstream adoption starts to take off. Criteria for assessing provider viability are more clearly defined. The technology's broad market applicability and relevance are clearly paying off. The Hype Cycle can aid in decision-making about investments Key Points Don't believe the hype § There is always new, emerging technology § Most won't pan out New technology is unpredictable Unintended consequences Unexpected winners and losers Informed skepticism is healthy: Pilot projects provide real options § Portfolio approach to IT investments

Change Drivers (The General environment or "Macro Environment"

•Political and Legal Environment anti-trust climate, tax laws (usually effects threat of new entrants and supplier bargaining power) •Sociocultural casual dress to work, attitudes about family/work (usually effects threats of new entrants and buy bargaining power in industry analysis) •Technological process and product innovations. (usually effects threat of new substitutes and buyer bargaining power) •Demographic aging population, change in ethnic mix (usually effects supplier bargaining power and the focal firm: Focal companies are those companies "that usually (1) rule or govern the supply chain, (2) provide the direct contact to the customer, and (3) design the product or service offered".) •Economic interest rates, consumer spending (usually effects buyer bargaining power) *All effect competitor rivalry Examples: •Δ in globalization & diffusion of skills •Δ in internet capabilities and applications •Δ in who buys the product & how they use it •Δ in consumer tastes •Product innovation—differentiated versus commodity •Process innovation—mfg impact on cost & efficiency •Marketing innovation—available media •Entry/exit of major (?) firms •Δ in regulatory & policy environment •Δ in societal concerns, attitudes & lifestyle More specific examples: •Consumer reaction to globalization/homogeneity •Over-reliance on offshoring •More sophisticated mobile tasks •Privacy "event" •Backlash to limited social interaction •Heightened concern for the environment •Privatization of social security system •More anti-smoking legislation Shrunken gov't and advent of pure capitalism Real World example: Retail Change Virus is impacting: •consumer preferences (sociocultural) •overall econ climate (economic) •power of consumers (buyer bargaining power) •shift in basis of comp (competitor rivalry) Another Example: Consumer Preferences: Target is winning because it has done a terrific job identifying its target customers. K-Mart in contrast experimented with a very set of strategies and confused the market/consumer. (Target focused on convenience and affordability while Kmart tried to compete with target in that comp space and also Walmart in low cost/price). Kmart must make a tradeoff, cant focus on both.

A Business Process

"a collection of related, structured activities or tasks by people or equipment in which a specific sequence produces a service or product (serves a particular business goal) for a particular customer or customers. Business processes occur at all organizational levels and may or may not be visible to the customers. "A business process may often be visualized (modeled) as a flowchart of a sequence of activities with interleaving decision points..."

Partnerships

•Pooling of resources to generate a competitive advantage that neither firm could obtain alone •Must be mutually beneficial- diff than acquiring here The central purpose of partnerships is enhance companies' ability to compete better. Reasons to Partner-very similar to m&a logic: •enter new markets (esp. international) •develop new technology (esp. new product) •develop or share assets (e.g., mrkting, production, distrib.) •combine complementary technologies/assets •share risk regarding a new venture •execute a government contract (legitimacy, non-political) Good partners: •Active problem solvers •Trustworthy •Innovator on connecting resources Risks: •Misrepresentation of partners' competencies/contribution (partner's inputs looked a lot better from a distance) •Partner fails to make complementary resources available (partner doesn't send its "A" team) •Being held hostage through specific invtmts made w/ partner (we built this plant together & you're not going anywhere) •Misunderstanding a partner's strategic intent or goals (e.g., partner is in it to learn trade secrets) Have a clear contract: •Central goal/purpose •Scope of activities •Roles of each partner (e.g., inputs, operating oversight) •Performance measures •Test period and milestones •Expected life Exit strategy & conflict resolution Take-aways: •Carefully craft the contract for diff. scenarios •Anticipate and plan for change •The partnership must fit with the larger strategy •Alliances/JVs should have Øa test period Ømeans of measuring success Øclear outline of respective roles •Be careful partnering activities near the core •Best to have a fallback plan

Diversification

•The primary concern of corporate-level strategy. It involves entry into new businesses. •There are varying degrees of diversification. •The appropriate degree is seldom clear. •Definition of "related" is key Can we add value by broadening our scope? Key Objective: Applying current skills to a new space or industry •Diversification involves broadening out into a new business. •This arrow represents a jump over to a new competitive space. Investors will ask: what justifies this leap (i.e., why such confidence)? •These green arrows(core competencies) provide the basis for pivoting into a new area. •The green arrows should be robust core skills applicable broadly. •This connects back to our discussion of core competencies/core skills (the means of expansion).

Ecosystems

A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem. •Business-level analysis •Interdependent elements surrounding the business or product •Typically a complex web •One disruption can have a ripple effect •Mgrs must understand interrelationships •Holistic organism consisting of smaller systems •Analysis irrespective of ownership (e.g., iPod and iTunes library) •Mutually dependent elements •Many subsystems •Hierarchies of contribution •Complex relationships •Equilibrium Elements of an ecosystem (kinda like an activity system but outside the firm): Suppliers, local gov, customers, complementary businesses, competitors, and in the middle- the focal firm Ex: The car industry value chain whereby several components go into a finished product with a large number of companies partnering to create more added-value. The more players within that ecosystem, the larger the value created and the larger the network advantage. Takeaways: •Companies operate in and depend upon a set of two-way relationships •Important to understand and proactively manage key relationships •Shifts in the surrounding ecosystem can impact ability to compete.

value proposition

A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product. A value proposition is part of a company's overall marketing strategy. The value proposition provides a declaration of intent or a statement that introduces a company's brand to consumers by telling them what the company stands for, how it operates, and why it deserves their business an innovation, service, or feature intended to make a company or product attractive to customers.

Actvitiy System (strategy)

Activities that support the companies aims and themes. (investments or conscious decisions) Strategy is formulated by understanding and realigning the firm (resources/capablities) and environment( T&O)-like SWOT analysis. Strategy formulation: the building blocks of activity systems(resources/capablities/competencies) create possible activity systems that expose competitive position and area for uniqueness(trade-off either one or other-low cost or diff quality for example) and create competitive advantage. A firms strategy is unique and diff from others.

Looking Around the Corner (LATC)

Change can: •occur rapidly and from unexpected places •be non-linear •lead to bigger changes •be far-reaching Managers must: •systematically examine for change & associated effects •"look around the corner" for novel solutions •think of effects relative to competitors •predict comp responses Possible changes: •New relevant macro trends •New competitors •New rules & sources of advantage •New target markets •New customer needs •New regulatory concerns New applications of current technology Leaders today need to constantly be looking at trends and challenges that could disrupt or create opportunities for their business. Leaders can't afford to be reactive - they must consciously be very proactive. Whether you're leading an organization, department or small unit within a company, you still need to be looking ahead.

Business and business ideas

Markets are rapible changing, idea generation is crucial, customers needs drive new ideas, legacy and start up companies must innovate.

Levels of Firm Analysis

Competitive Space: Tells who is competing and where Business Model: Tells logical story on who customers are and how value is delivered Business Strategy (positioning) and Functional Strategy (uniqueness) : Tells how company will differ from rivals Example: Dollar General vs Family Dollar vs Dollar Tree All have same model but diff strategy. Both aim for lower income families but one is in suburban areas while others r in urban, for example. *strategy can be viewed as a means of customizing the business model. Insights gained through benchmarking can help managers to identify how to customize. The goal is always to differentiate or set the company apart from others in the marketplace

Corporate governance

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure. When companies go public, a fundamental change occurs in the governance structure. The separation of owners and managers introduces the possibility of interest conflict between these actors. This is referred to as the agency problem or the principal-agent problem Primary Reasons for Separation: 1) specialization in decision making 2) seeking new capital (the "modern" corporation) The core worry or potential problem is that managers may pursue actions in their own best interest to the detriment of the owners Primary remedies: These four traditional remedies are viewed as solutions to the principal-agent problem. In short, they keep management in check and help to protect shareholder interests. Their effectiveness varies depending on the situation (e.g., industry, company type, pace of change). They tend to operate in concert with each other (i.e., no one remedy stands alone). •Executive Compensation Design: Øaims to align incentives with s/h and pay for perf. Øsalary & bonuses don't fully work Østock options seemed to work, but didn't quite Ørestricted stock looks more appealing Board of Directors: Øagents for the shareholders in monitoring mgmt Øfiduciary duty to shareholders Ømust be independent Ømust participate in strategic decision making Institutional Owners: •Institutional Owners, esp. Hedge Funds Øe.g., mutual funds, pension funds, insurance cos. Øsize is key Øpossess a very effective "voice" in monitoring management; "Voice" vs "Exit" (wall street walk) Market for Corporate Control•especi. PE firms (Private equity firms have become a key driver behind this remedy. The market for corporate control (i.e., threat that someone will make a run at your company and snatch control away) is a difficult remedy to measure, but most agree that it bears on managers' thinking): Øcollection of firms/individuals that presumably are interested in purchasing the firm, replacing mgmt. and revising the strategy that caused low firm perf. Øever-present threat Øcharacterized by the corporate raiders Øpurchase of controlling interest is a necessity Øundermined by poison pills Newer Remedies (New "checks" on corporate behavior have emerged with the advancement of technology.): •Whistleblowers Øanonymous reporting Ømust be free of retaliation Ønew legal protections •Professional journalists (investigative reporting) •Social media Ønon-company communication network Øbroad reach anonymous •Corporate governance is hotly debated •Corporate scandals are in the news everyday •Few executives have gone to jail •"Business" image is tainted! Takeaways: •No longer taken for granted •Events and bad behavior have prompted a shift in regulations- Dodd frank act •Climate has changed to "heightened activism" •Four conventional remedies to the agency problem Trends of corporate gov: •More active boards—in particular on shaping strategy •Assertive institutional investors (e.g., published lists) •Elimination of token ownership by directors & top mgrs •Shift toward using stock as director compensation •Increasing #s of outside directors •Smaller boards due to focus on specialized expertise •More separation of CEO and Chairman positions •Broader int'l mix on boards •Higher expectations by society to balance profit w/ social needs New Trend-Going Private: •No SOX restrictions and public scrutiny •No qtrly earnings expectations, but higher L-T goals •Fewer SEC filings •Fewer nuisance questions, but pushed by intense, expert directors •Leaner staff w/ more focus on costs (e.g., fewer mgmt perks) •Bigger payout for executives—if targets are met •Decisive & agile with a strong sense of urgency •Debt service is big motivator!

Three types of strategy

Corporate-Level--Selection and management of a mix of businesses competing in several industries. Identify what businesses to enter and how to manage them. Determines resource allocation. •This involves the building of a business portfolio. Harold Geneen is seen as the father of the corporate strategy type. He had a huge personality, and the business approach was an interesting derivative of his personal managerial style. •Two key questions addressed: ØWHERE SHOULD WE COMPETE (high- or low-tech, stay close to home or not)? ØHOW SHOULD THE GROUP BE MANAGED (strong ties b/t the units, hands-off approach by HQ)? •Diversification is desire to "conquer new worlds" •Must be able to add value to each business •Relatedness is key; portfolio theme •Think in terms of skills Business-Level--Translate general objectives into concrete strategies for individual businesses. Determine how do we compete in this business? Functional-Level--Ascertain how individual functions contribute to the firm's ability to compete? (e.g., HRM, production, customer service, sales, R&D) Corporate vs Business: Business: Δ in how to compete •No Δ in where to compete •Incremental step •Typically minor cap. invmnt •Product launch or purchase to adjust targeted demographic. Corporate: •Use competitive how or resources in a diff space •New business entry (i.e., Δ in where to compete) •Concern for portfolio •Major change •Org as separate unit *multi-business companies must identify value-creating element

Data vs. Information

Data are facts, observations, symbols or representations that are recorded Information is data placed into a meaningful context such that it may effect a future decision or course of action Information reduces uncertainty Information often has surprise value Think of data as raw material used to produce information. Data, decisions, and business value: Technologies automate transactions:Point of sale systems, RFID technologies, transaction SCM ... producing data on each transaction:Stored in repositories (often Enterprise systems) ... which can be used for business analytics: Using sophisticated statistical tools ... to identify improvements and opportunities: Processes, capabilities, choices, strategies Data is a raw material § Business analytics is a process of analyzing data to aid in decision making (with the goal of generating business value) § Turning data à information requires contextualized understanding of the data and business goals Data-driven marketing: respect your target audience: What you find cool, someone else might find creepy Involve diverse perspectives to improve decision making § Really, do involve diverse perspectives across multiple dimensions of diversity § If you are truly providing value to customers, they will opt-in

Group Decision Making

Dynamics of thinking in groups: Informational signals § Reputational pressures Common errors: Amplifying individual errors § Cascading to the wrong answer § Polarizing groups § Focusing on commonly held information Solutions: Recognize biases and engage tactics to overcome them § Structure deliberations to share and incorporate diverse knowledge Conflict: Task-related conflict is good for team performance § Interpersonal conflict is bad for team performance Diverse groups: May be more prone to interpersonal conflict (fault lines) § Often lead to more creative / innovative ideas § More likely to consider perspectives of all relevant stakeholders Conflict less likely with: Shared experiences, common goals, and defined roles Decision-making draws upon emperical evidence and personal experiences: Individuals typically have preferred styles § Individual styles are further influenced by factors including: culture, time-pressure, and peer-pressure. Pay attention to decision-making process: Everyone has biases § Group dynamics can magnify them (or minimize them)

Decision-making process

Identify problem: Who identifies problems? § Who prioritizes problems? § How are problems framed (e.g., scope, urgency, timeframe)? Generate Potential Solutions: Who identifies solutions? § How broadly are stakeholders involved? § What is acceptable to propose? Pick best solution: What is deliberation process to decide among alternatives? § What is basis for identifying best solution? (Best for whom?) § Who makes the decision? Communicate and implement decision: Who communicates chosen solution? § When and how is the decision communicated? § What happens if stakeholders dislike the decision? Types of Decision-makers: Visceral Decision makers: Seldom trust analysis; make decision unilaterally Informed Skeptics: Applies judgement to analysis; Listens to others but is willing to dissent. Unquestioning Empiricist: Trusts analysis over judgement; values consensus

The Invisible Hand

In microeconomics, you studied the influence of the invisible hand on resource allocation. The central idea is that markets operate passively (i.e., no required intervention) in sorting between winners and losers. This sorting mechanism is of great interest to managers because it guides competitive decision making. Understanding this mechanism is essential to building the right company (i.e., aspects that are rewarded in the marketplace).

Levels of Artificial Intelligence

Level 1: Insights and Foresight. This is the foundational level that includes statistical analytics as well as the broad categories of predictive analytics (e.g., clustering, classification, regression) and data mining. The goal of the level 1 is to quantify cause-and-effect, establish confidence levels and measure goodness of fit. Level 2: Optimized Human-decision Making. This level includes machine learning, deep learning and neural networks. The goal of these advanced analytic algorithms is to enable computers to learn on their own; to identify patterns in data, build models that explain the data, and predict outcomes without having pre-programmed rules and analytic models. Level 3: The Learning and Intelligent Enterprise. This level includes artificial intelligence, reinforcement learning and cognitive computing. These advanced analytic algorithms self-monitor, self-diagnose, self-adjust and self-learn. These analytics perceive the world around them, create goals, make decisions towards those goals, measure decision effectiveness, and learn in order to refine the decisions that advance towards the goals (maximize rewards while minimizing costs). Levels of AI based Automation: Human led, Human led machine supported, machine led human supported, machine led human governed, machine controlled.

Porter's Five Forces Model

Managers must anticipate change and understand its implications, thus Porter's model is used to is an analytical tool to better understand the change drivers and the competitive forces surrounding the firm. A model for analyzing the competitive forces within the Environment in which a company operates, to assess the potential for profitability in an industry. There must be a trade-off as well, cant focus on all environmental forces. Five Forces: Threat of new entrants, the threat of new substitutes, supplier bargaining power, buyer bargaining power, and in related to all-competitive rivalry. Used to guide decision making. "The Five Forces framework gives managers a lens through which to view the changes that arise..." "Transformation is neither good nor bad" "managers should think about the future and make appropriate forecasts/predictions. They are sometimes right and sometimes wrong. This is unavoidable, but we want managers to always make good decisions—though not always right. Good decisions exhibit sound logic and economic rationale. They incorporate and weigh all available information. This is the most that we can ask of managers. We must acknowledge the reality that these decisions will not always be right." How it is used: •Analysis begins with the Broad or General environment and maps into the impact upon the focal firm. •If the change driver causes the competitive force to increase, the ability of the firm to generate profit will decrease. •Ultimately, the firm will be driven from the market unless it can successfully finesse these change drivers. Common mistakes when using Porter's analysis: •Defining industry too broadly/narrowly •Straying to other businesses •Making lists instead of rigorous analysis •Paying equal attention to all of the forces •Using a static approach to analysis •Confusing cyclical/transient ∆ with true trends •Using the model to declare industry attractiveness

Roll-Up Strategy

This is an effort to consolidate many independent businesses under a national brand. In a way, it is the opposite direction of franchising but similar result. Trends from firms using Roll-ups: Branding for unknown üStable cash flows üIncreased capital requirements üFragmented industry üNegotiating power üOpportunity for sophisticated mgmt üComplex means of expansion üMarket failures Ex: Cinemas and coffee shops.

"Stuck in the Middle"

This simple concept of understanding who and where the customers sit in the marketplace should managers' decision making. The everpresent hazard is falling in between customer groups (called being stuck in the middle). This sometimes happens when companies are stretching to serve/reach too many customers.

Aquire vs alliance

Use this to determine: 1.Synergies The two companies would like to leverage aspects going both directions.-acquire 2.Redundant Resources Revenue per subscriber is declining, so costs need to be reduced. -acquire 3.Nature of Resource (soft versus hard) Target company's talent/expertise is important, and acquisition requires restricted stock to retain-alliance 4.Degree of Uncertainty It seems to be quite clear that the product will remain attractive, though unclear on exact monetization.-acquire 5.Forces of Competition Competitors are also interested in the target company, so alliance would be risky.-acquire 6.Difficult to Value Assets Target has lots of users, but their true value and company's value is unclear (i.e., overpaying?).-alliance 7.Cultural Fit Companies are very different; potential clashes.-alliance 8.Regulatory Obstacles Regulators were concerned about the scale of the two companies, though BM was uncertain.-alliance 9.Availability of Prior Integration Experience Facebook has prior M&A experience and seems well-equipped to utilize & improve target.-acquire 10.Information Asymmetry Similar products, easier to understand & price.-acquire Takeaways: •Motivating strategic objectives of acquisition and alliance are typically the same •Characteristics of the companies and context largely drive the approach used •Split-decision requires judgment •Nuances and personalities can influence these deals

Guide to Decision Making

What we want to improve: Objectives How to accomplish it: Initiatives .... Its a very popular approach. Leads to heightened competition Must detect tensions

Commodization

When products become indistinguishable from each other and consumers buy on price alone. (A loss of unique differentiation). "the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers."

Key objective of a Firm

Your most dangerous competitors are those most like u, ie competition, so find a competitive advantage

Pipeline

a "pipeline" is a source where products and services flow into a said business or company out to an eventual customer. What's in the "pipeline" could simply be anything from information, to processes, to services, or actual products. Since businesses don't want to create waste, a business will "pipeline" informatin, processess, services to actual goods to follow along a specific, established business process or flowchart, or workflow. Platform value proposition > stand-alone value proposition § Must be attractive to both suppliers and consumers § Managing a community: pay attention to platform culture Same-side network effects both positive and negative § More suppliers can cause over-supply (negative to suppliers) § More consumers can cause congestion (negative to consumers) Cross-side network effects occur across the market sides § More suppliers is (generally) more attractive to consumers § More consumers is (generally) more attractive to suppliers Optimal pricing senstive to cross-platform dynamics Consider "homing" costs Pipeline firms increasingly in competition with platform ones Distinct considerations when § Competing as a platform (AirBnB) § Competing on a platform (property host) § Competing against a platform (Marriott hotels) There are multiple forms of network effects § Positive and negative § Same-side vs. cross-sided

conglomerate

a group of diverse companies under common ownership and run as a single organization. The key factor is their ability to create value through connections between business units. Conglomerates, by definition, cannot pursue such sources of value creation. "This listing of news excerpts represents the use that I mentioned on the previous slide. If one can define a company's theme (e.g., Viacom as a media ___), then it probably is not a conglomerate. You can tell from the excerpts that the journalists are using "giant" and conglomerate" as interchangeable words. This is incorrect." "a portfolio of unrelated businesses"

Network Effect

a phenomenon whereby a product or service gains additional value as more people use it. Cross-side network effects are when the strength of one side has an impact on the growth of the other. They can be positive: the more readers a news website has, the more attractive it is to advertisers. And they can be negative: the more adverts a news website shows, the less attractive it is to potential readers. Same-side network effects refer to the change in value that occurs for users on the same side with the addition of users on that side.4. The same is true for drivers — more Uber drivers mean more competition for other drivers.

Benchmarking

a systematic comparison of the processes and practices of two or more companies Objectives: 1.Think through objectives in advance 2.Identify comparable companies 3.Be careful not to miss the system 4.Adapt, don't simply copy 5.Capture the qualitative elements 6.Remember that it is a means to an end How it should be used: 1.The core purpose is to improve our ability to compete. We are always chasing a competitive advantage. 2.There is an art to selecting the right companies to examine. It is best to focus on performance at the level of process or task. Simply selecting the topic financial performers assumes that we understand what contributes to overall financial success. This difficult from a distance. 3.This is an important. Borrowing from inside your industry only is challenge. In this setting, parity might be the best possible (i.e., achieving the same level of performance). Borrowing from other industries and introducing it into your competitive situation increases the odds of gaining a competitive advantage. 4.Level of the processes is where the action occurs. You might view this as the molecular level of companies. 5.Context is vital! Consistent with Gavetti & Rivkin's insights, managers must understand how the (replicated) processes fit/interact with other parts of the company. Breaking the company down into specific steps or processes helps us to better understand the target exemplar. When managers set out to improve processes by studying other companies (i.e., benchmark), they must make some decisions on who is worthy of being studied. This company listing shows generally accepted exemplary capabilities. For example, a company interested in improving its internal training program would look toward GE as a starting point. an innovative search for new ideas or ways of doing business suggests that even analyses demand creativity. The search challenge is finding companies or industries that are different, yet relevant Ex: Benchmarking through hiring(of a CEO from another company, for example).

Industry Life Cycle

basis of competition shifts over time; aka, the game changes the stages of introduction, growth, maturity, and decline that typically occur over the life of an industry. Introductory stage: Competition to: •Discover new ideas •Secure early funding •Teach & shape consumer behavior •Establish a standard •Find appropriate business models Growth Stage: Competition to: •Gain legitimacy •Ally with key partners •Secure more funding •Establish leading brand image •Gain share of expanding pie •Differentiate product Maturity Stage: Competition to: •Maintain share of fixed pie •Identify new brand extensions •Shift focus to costs & efficiency •Properly invest in process innovation Decline stage:Competition to: •Protect share of shrinking pie •Maintain "going-concern" image (warranties) •Enter into business combinations As industries grow and mature, the nature of competition changes. Please pay special attention to the change in how companies compete beyond the product market. This evolution is super important to managing because it shifts what is important.—that is, what is rewarded in the marketplace. This understanding of what the market rewards should guide strategy formulation (how you configure the company. This concept extends our strategy discussion because it addresses the broader demands of the market (i.e., not just customer needs).