Strategy

Michael Porter 5 forces Model

(forces that shape competitive strategy at the business level)
1. Supplier: Bargaining power of the suppliers
Worst Case:
Supplier controls full supply (no competition)
Customer unimportant
Ex: Jackson red boot


2. Customers: bargaining power of the customer
Worst Case:



Ex: Wal-Mart with P&G and Gillette
Customers cannot legally band together
3. Substitutes and new technology: threat of substitute products
Research and Development
Example: Sugar neutral sweet splenda
Do not, will not
High/low technology: percent of revenue spent on research and development
Highest technology pharmacy (Zimmer, bio-met and Depuy)
4. Barriers to Entry: risk of entry by potential competition
Ex: Harley Davidson-blocked Yamaha and Honda
Strengthened
5. Competitors: rivalry among established firms
Best Case:
Bausch and Lomb, contact provider
Bought up of defected competitors
Majorly applies to barriers to entry
Jack Trice, IOWA STATE

Are cars like rice? Bad position or a commodity?
15 minutes of fame = electric starter, radial tires, EFI, AIRBAGS, 0-60 MPH, defects (smaller
margin)
Advantage is temporary
Cars are like rice, only if you let them be



C

10 Box Full Professional SWOT Model of the strategy process:
5 Characteristics of Process
Rigid Order: Michael Jordan Rule
Salvationary
Mundane: team power
Perpetual: keep at it
All important- love your daughter more
SWOT Model:
1. Mission
Say who we are, what we stand for
True, not hogwash motivational, no charm school
2. External Analysis
5 micro environmental factors
Porters 5 rules
Threat and Opportunity
3. Internal analysis
Strength and Weakness
4. Interactive analysis
SWOT
5. Long term goals (5, 15, 20 years)
Example: Increase market shares by 25% in 5 years
6. Long term strategies
Build: Build the market (ex. breakfast with coke/snickers)
Win: take away from someone else (ex. breakfast cereal)
Acquire: merger (ex. bring aboard other competitors)
7. Short term goals (1 year or less)
Increase market share by ___% in one year
o 1%- steady as she goes start of slow
o 5% logical not necessary
o 30% get that and expect fall out
8. Short term strategies
9. Strategy implementation managing (leadership)
Constant struggle
10. Monitoring, control and feed back
Continually riding the surf

1-8 Strategy Formulation Design of Purpose
3 Logics
Goals before strategies with each term
External before internal
Long term before short term
9-10 Strategy implementation accomplishment of purpose
Where is our need for knowledge the greatest
Where is our current knowledge lowest? (glass half full or empty)
Everywhere, knows more in some areas
Knows the least about this need the greatest
Out of the 5 forces, which is the most dynamic? Non..??

Film Case: When We Were Kings
-Rumble in the Jungle (Zaire 1974), academy award 1997
Cast:
George Plimpton: Aristocratic, sophisticated
Norman Malle: Earth, brilliant, heavy drinkers
Muhammad Ali: exiled , rusty, 2-1 underdog, fight for losers pay
George Foreman: young, strong, mean champion, heavy favorite
In Boxing Ring: underdog, plan disaster, another plan, disaster, keep on, continuous
improvement
Speech at Harvard: everything goes right, refers to 10 box step to answer flaky question
One box constant: Mission, Box 1
POINT: something always comes up, perpetual

Strategic Decision Making: most decisions are bad
7 Step Path to HighER quality decision making
Ex. Raw materials located in Montana and major customer source in Florida. Where do you build
your plant?
Step Problem
1. Decision Maker alone Tree: one tree doesnt make a forest
2. Decision maker + expert Trees
3. Decision maker + expertS Group think: goes along to get along
LCD (lowest common denominator), C grade solution
4.Devils Advocate (DA)
-Jester mocks but never loses head, pause
to reflect
Artificiality: boy who cried wolf, just to say opposite
5.Dialectic Inquiry (DI)
-no writing, live debate (ex. courtroom)-
more time consuming
Compromise: cut the baby in half, worst of both worlds
6. Other Decision maker (ODM) If you cant stand the heat, stay out of the kitchen
7.Role Rotation: varied experiences
-geographic rotations or role rotation
(experience lots of different jobs)
SLOW

Steps 4/5: build in conflict and break up the consensus of groupthink

Step 1 (own a tree, all got) and 7 (hole forest) look the same but are very different


Decision Making- role rotation
A B C D E F G
TRAIN CAB STORY
ON QUIZ: The Feeling of personal responsibility for a project leads decision makers to commit which
cognitive bias
ANSWER: E none of the above, escalation of commitment

Levels of Strategy:












Coca-Cola Pepsi Co
Soda Soda
Juice (minute Maid) Juice (Tropicana)
Water (Disani) Water (Aquafina)
Nobody in Kroger/Marsh touches Coke or Pepsi products
Manufacturing synergy: all liquids
Pepsi also makes snacks (Fritos, lays, cheetos, Doritos, Quaker oats, Gatorade)
o Mouth Synergy
GM and Frigidaire, Ford and Phil Co, American Chrysler made cars and refrigerators (now
changed corporate strategy)- ALL manufacturing synergies
Business Level Strategies:
1. Cost Leadership: $ - Cost = Profit
2. Differentiation: offer customers something they value that are willing to pay more for,
charge more
3. Both-combination, hardest but most profitable
4. Focus (on product, service, everything) segment: Martha on Flour, Left hand, southern
5. Not important
6. Not Important
7. Stuck in the middle- avoid, no strategy

Questions Should Ask shareholders, manager, employees: look for T/O w with differentiations ( and all
business level strategies)
1. How people become aware of needs? Oral-B dye toothbrush
2. How do customers find you? Brick and clicks (Wal-Mart store fronts and website)
3. How do customers repurchase? American hospitals supply- tongue sticks/cotton balls
4. What happened when product/services is delivered? Progress, provide when need it
Functional: Marshall, the functional resource (marketing strategy); cross functional
(managers, i-core idea, Pro bowl vs. Super bowl, Titanic)

Business: Domain navigation. How do gain competitive advantage in
product market? (Ford vs. Chevrolets, brand management, Porters 5
forces)

Corporate: Domain selection, what business (es) will be
in? If answer is plural want synergy- 2 + 2 =5 (if you want
something done, ask a busy person)
Synergy: final outcome is greater than sum of parts
5. Hows product installed? error 23, HP-Compaq, DVD ( want to teach a man to fish)

6. Hows Product paid for? Bank of American credit cards, invoice now easier to read money value
of time
7. How product is transported? Pepsi 2-liter bottle, coke shaped like hourglass
8. How help customers use product? Con-agras, butterball, 24 hour hotline









































Strategic Management Process:

The Traditional Approach:
Implicit in chandlers definition is that idea that strategy involves rational planning
A New approach:
Strategies can emerge from within an organization with any formal plans
Mintzbergs points is that strategy is more than what a company intends or plans to do: it is also
what it actually does
a pattern in a stream of decision or actions, the pattern being a product of whatever intended
strategies are actually realized and of any emergent strategies
CEOs consider strategic planning an anachronism
Planning involves the generations of a series of what if scenarios whose function is to try to
get general managers at all level of the corporation to think strategically about the environment
in which they do business
Focus on scenarios : What will we do is this happens? ex: Royal Dutch/Shell
Untouched Market: Honda and affordable motorcycles
Successful strategies can emerge within an organization without prior planning often in
response to unforeseen circumstances
Message for management is that it needs to recognize the process of emergence and to
intervene when appropriate, killing off bad emergent strategies but nurturing potentially good
ones
Model of Strategic Management Process:
Sequences is likely to hold true only for formulating and implementing intended strategies
Formulation of intended strategies is basically a top-down process, whereas the formulation of
emergent strategies is a bottom-up process

Mission and Major Goals:
Provide the context within which intended strategies are formulated and the criteria
against which emergent strategies are evaluated
Major goals specify what the organization hopes to fulfill in the medium to long term
Hierarchy of goals: Coke within arms reach of every customer, then follows superior
stockholder returns
External Analysis:
3 interrelated environments should be examined at stage: the immediate, or industry
environment in which the organization operates, the national environment and the
wider microenvironment
Analyzing the national environment requires and assessment of wheater the national
context within which a company operates facilitates the attainment of a competitive
advantage in the global marketplace

Internal Analysis:
Involves identifying the quantity and quality of resources available to the organization
Strategic Choice:
Purpose should be to guild on company strengths in order to exploit opportunities and
counter threats and to correct company weaknesses
Functional Level:
o Competitive advantage stems from companys ability to attain superior
efficiency, quality, innovation and customer responsiveness
o Improving the effectiveness of functional operations with a company such as
manufacturing, marketing, material management, research and development
and human resources
Business Level:
o Overall competitive them that a company choose to stress, the way it positions
itself in the marketplace to gain competitive advantages and the different
positioning strategies that can be used in different industry settings
o Cost Leadership and Differentiation Strategies
Global Strategies:
o Benefit and cost of global expansion and examining four different strategies:
multi-domestic, international, global and transnational
Corporate Level:
o What business should we be in to maximize the long run profitability of the
organization
o vertical integration, diversification in new business areas, strategic alliances,
acquisitions and new ventures
Strategy Implementation:
Design Organizational Structure: entails allocating task responsibility and decision-
making authority within an organization (tall or wide, centralized or decentralized)
Design Control Systems: how best to assess the performance and control the actions of
subunits
Matching Strategy, Structure and Controls: achieving a fit among its strategies,
structure and controls
Managing Conflict, politics and change: Power struggles and coalition building, office
politics
Feedback Loop:
strategic management is ongoing process (objects attainable but poor implementation
or vice-versa
Criticism of Formal Planning Systems:
Fit Model: centralized purpose is to identify strategies that align, fit or match a companys
resources and capabilities to the demands of the environment in which the company operations
Fit Model most closely associated with Harvard Business School during 1960, Kenneth Andrews
14 studies reviewed in survey by Lawrence Rhyne, 8 found varying degrees of support for the
hypothesis that strategic planning improves company performance, 5 found no support for the
hypotheses and 1 reported a negative relationships between planning and performance ( model
not the end all and be all)
Thomas J Peters and Robert H Waterman, authors of the bestseller In search of excellence, are
among those who have raised doubts about the usefulness of formal planning
4 reasons why doesnt always work:
1. Planning equilibrium
Almost all larger companies currently have some kind of formal strategic
planning process, a condition of planning equilibrium exists
No strategic advantage but if you dont plan you fall behind
2. Planning Under Uncertainty
future is inherently unpredictable
In the real world, the only constant is change
Object is to get manager to understand the dynamic and complex nature of
their environment and to think through problems in a strategic fashion
Does expand peoples thinking and in such it may lead to better plans, as seems
to have occurred at Royal Dutch/Shell
3. Ivory Tower:
Treat planning as an exclusively top management function, results in strategic
plans formulated in a vacuum
Leads to tension between planners and operating personnel
Correcting approach involves recognition that, to succeed, strategic planning
must comprise managers at all levels of the cooperation
The role of cooperate-level planners should be that of facilitators, who help
operation manager do the planning
4. Strategic Intent Versus strategic fit
C.K. Prahalad of University Michigan and Gray Hamel of London Business school
attacked the fit model as being too static and limits
Too much on degree to fit between the existing resources of a company and
current environmental opportunities, and not enough upon building new
resources and capabilities to create and exploit future opportunities
More concerned with todays problems than tomorrows opportunities
Secret to Toyota, Canon and Komatsu success is bold ambitions which
outstripped their existing resources and capabilities
Top Management creates an obsession with winning at all level of organization
and then sustained that obsession over a ten-to-twenty-year quest for global
leadership
Strategic Intent: notion that strategy formulation should involve setting
ambitious goals, which stretch a company and then finding ways to build the
resources and capabilities necessary to attain those goals
Strategic management process should begin with challenging goals-such as
attaining global leadership. Then, throughout the process the emphasis should
be on finding ways (strategies) to develop the resources and capabilities
necessary to achieve these goals, rather than on exploiting existing strengths to
take advantages of existing opportunities
Strategic Intent is more internally focuses and is concerned with building new
resources and abilities. Strategic focuses more on matching existing resources
and capabilities to the external environment
Pitfalls in Strategic Decisions:
1. Cognitive Biases
Systematic errors in decision making process, creatures of habit
Prior Hypothesis: strong prior beliefs about relationships between two variables making
bias toward decisions when they are even presented that their beliefs are wrong
Escalating commitments when decision makers, having already committed to significant
resources to project, commit even more resources to a failing project
Reasoning analogy using simple analogies to make sense out of complex problems
Representative bias: rooted in tendency to generalize from a small sample or even single
vivid anecdote
Illusion of Control: tendency to overestimate ones ability to control events
(overconfidence termed the hubris hypothesis)
2. Group Think: group decisions makers embark on course of action without questioning
underlying assumptions
May explain why, at least in part, why companies often make poor strategic decision in
spit of sophisticated strategic management
Techniques for improving Decision making: counter acting cognitive biases and group think
Devils Advocacy: generations of both a plan and a critical analysis of the plan, possible
perils
Dialectic Inquiry: generations of a plan (a thesis) and a counter plan (an antithesis)
From practical point of view, however, devils advocacy is probably the easier method to
implement because is involves less commitment in terms of time and than dialectic
inquiry