401 Cheat Sheet

Slide 1

Strategy is:

-link between firm and external environment

-plan for achieving firm goals

-framework to identify, classify and understand factors relevant to strategic descission

Corporate strategy vs business strategy

-Corporate is where to compete (corporate HQ)

-vertical intergration, horizontal intergration, jv acqusitions

-Business is How to compete (functional ares)

-cost leadership, product differentiation, innovation

Why is strategy important

Simplifies descission making proeess

Improves descission making process

Allows goals/ corporate vision to be communicated

Suscessful firms:

Set simple goals, objectively appraise weakness and strengths, understand competitive environment,
implement strategies effectively
Slide deck 2 Industry analysis

Strategy is link between firm and industry (suppliers, competitors, customers) and other factors
(economy, social, political, tech, natural)

To make a profit a firm must understand core business environment: customers, suppleirs, competitors

Understand customers

-create value

Understand suppliers and manage relationships

Understand competition

Porters 5 forces

-5 forces that impact profitability

1 comptition from subsitutes

-Impact of force depends on availability of subsitutes and price-performance of substitute

2.Threath of new entry: profitability attracts new entrants which can drive prices down

-impact of force depdns on existence of barriers

-barriers include capital requirements, economics of scale, cost advantage, product diff,
distribution channels, government,

3. Competitor rivalry: Aggression can drive down pric, less aggression leads to non price competition

-Impact on profitability depends on Concentration, diversity of competitiros, product diff, excess

cap exit barriers

4. Bargaining power of buyers

-If buyers are price sensitive

-products will be less differentiated and more focused on price

-Greater pressure on suppliers to reduce price

-If buyers have lots of power

-number of buyers is relatively low so suppliers do not want to lose even 1

-Better information about product increase power

-ease of vertical intergration increase buyer power

Slide deck 3 Resources and capabilities

5 forces tells us which industry to compete in

-Research says that where we compete doesn’t really matter because there is competition every

-It is more important to gain competitive advantage by developing resources and capabi

Resources: tanglible assets of the firm

-financial (borrowing ability and internal funds generation ability)

-physical (reservers of raw mat, land, plant, equip)

-Intangible (IP, and R&D patents, facilities)

-HR resources
What si point of analyzing resources

-economize the use (Make the most use out of assets) -do same with less or more wih same

-Evaluate howt o use assets more profitabily

Capabilities: A firm’s ability to undertake a particular productive activity

-Basically the functional departments

Use capabilities to exploit resources

How are capabilities developed

-routines

-codification, repeated learning

-heirachial intergration

-coordication between other departments and with other capabilities

Profitability of a resource/capability

-Scarcity

-relevance

-durable

-immitable

Organizational resources- org capabilities- strategy – survival

Slide deck 4: Competetive advantage

Comp advantage: Ability to generate consistently higher rate of profit than other firms

How to develop

1.Identify sources of comp advantage within an industry by indentifying success factors

-factors within environment that determine its ability to meet goals

-How to serve customers (low price, consistency, location ect)

-How to survive competition

2.competitor intelligence

-Predicting their next steps and encouraging them to act the way you want

-In order to understand we must examine

-current strategy (Where is the firm investing)

-objectives (Market share increase, financial perforamcene)

-assumptions about industry

-Resources and cap (direct funds to exploit competitor weaknesses)

3. Cost or differentiation

-cost eladership (low price-high vol – lower costs)

-Ket strategy elements (economics of scale, cost control)

-key resources (access to capital. Process engineering, job specialization

-Differentiation (high price- greater investments-unique market position)

-Key strategy: Branding, design, service, quality

-Key Resources: Marketing, creativity,

4. Change

Context driven

-change in preferences caused by new tech, policy, economy, social factor,

Firm driven

-redseigned processes/products

Slide deck 5: Diversification

Ideal diversification strategy

-develop core- develop around core (create synergy, offer better product)- then explore non
core businesses

Synergy:

Benefit from using resources or capabilities across multiple business units

Can be intangible or tangible

Merek and Pfizer case

Changes in the industry

-Consolidation (decrease New entrants)

-Drug development (Decrese ew entrants)

-More expensive and takes longer

-Increasing competition

-Genomics and personalized medicine

-Biotech (Sub)

-Many pharmaceuticals trying to invest here with JV

-Specialist Generics (Subsitute)

-severe price pressure once generics steps in

-Less patent protection time (Threath of subsitutes)

-Falling market exclusivity times

-Outsourcing of R&D to low cost areas like india and china

-Single or differientated pricing

-Growth of managed care between 1988 and 2002 (increased buyer power)

-AKA government intervention

-Prescriptions were now mostly paid ffor by gov or private insurance

-MCO begin contracting with Pharmacy benifit managers

-PBM buy pharmacuticals from manufacturers

-Arrange large price discounts and can signiigantly influence price

-A lot of buying power

-Growth of Medicaid and medicare (Incrased buying power)

-Government becomes biggest reimburser of pharmaceutical prescriptions

-Might lead to cost cutting measures

-Governments migt try to egotiate price with pharma companies and deive down p

Sales and marketing (increased competition)

-Less sales rep time with doctors is being allowed

-Direct to consumer marketing

Merk

-Research based institution

-hires best sciencetitsts

-Focuses on blockbuster drugs

-Divested from generics

-No mergers

-Relied on external licencing deals instead

-Collaborative reseach

-In response to increasing drug development costs

-Have greatly improved marketing and sales force

-In response to increasing competition with other pharma

-Cost cutting measures

-Narrow focus on 9 areas

-Streamline R7D facilities

Issues

-Failures of blockbuster drugs approval

-Expiration of important patents

Pfizer

-Growth by merger

Hunter not gathrer

-Huge R7D spending

-Despite this poor R&D efficiency

-No internally developed drug

-Best sales and marketing

-extensive advertising budget

-very educated, trained and competent sales force

-Able to influence pricing abilitiy

-Emerged as a good marketing partner for biotech

 -Size of sales forces gives bundling power when negotiating with PBM

-Cost cutting

-Divest from consumer health

-Plant closing

-Admin cutbacks

-Streamlineing sales force

-P;an on using cash to fun future aqustions

Issues

-Patent cliff