BUAD 497 Midterm Study Guide
BUAD 497 Midterm Study Guide BUAD 497
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This 9 page Study Guide was uploaded by Emily Laurienti on Sunday October 9, 2016. The Study Guide belongs to BUAD 497 at University of Southern California taught by Prof. Michael Mische in Fall 2016. Since its upload, it has received 247 views. For similar materials see Strategic Managment in Business Administration at University of Southern California.
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Date Created: 10/09/16
Midterm Study Guide Core Knowledge of General Theory & Key Concepts (8 questions). Strategy—designed to create long term and sustainable economic and competitive dominance It is a process to find a better or superior position—this could be from an already good position to a better one or from a poor position to a good one Porter- Five Forces, Industry Attractiveness, PESTEL & CAGE Porter- Five Forces This tells us about internal behavior Arrows pointing to rivalries indicate how much pressure that factor can put on the industry—this can change intensity and even directions We use this to determine who can put the most pressure on an industry and what we can do to counteract it On what basis do you compete? o Cost o Price o Quality o Service o Intellectual property o Location When a substitute emerges into the market you have less power and the buyer has more power There’s a value proposition attached to the attractiveness of an industry Industry Attractiveness Attractiveness Tests o Provide a set of filters to assess whether to enter an industry or buy a company o Easy to use, intuitive appeal How attractive are the customers? Will the customers stick with us? What are the buyer values? What factors indicate “attractiveness”? What is the relationship between attractiveness and industry structure? PESTEL Method Helps us define how the industry behaves and how the company behaves in the industry Political factors Economic factors Social factors Technological factors Environmental factors Legislative factors CAGE Method Cultural Administrative Geographic Economic Resources & Capabilities of the Firm Factors of Customer Experience Resources and Capabilities of Firm o Quality o Dealers o Supply chain o Service External Factors o Macroeconomic factors o Competition Theory of Rivalry & Competition How do we compete? Strategy is about creating, capturing, expanding, and defending. First you have to decide which you want to do What environment are you competing in? o Macroeconomic o Political o Cultural o National Where are you in the microenvironment? o Industry How do the macro and micro environments behave? o What drives the industry? o Identify the drivers of the industry External factors % change in GDP What’s the correlation of the industry to GDP? What’s the correlation of your company to GDP changes? What’s the impact of social media on your industry? Internal factors Value proposition o Quality o Price o Performance Differentiation Geography Buyers Suppliers/supply chain management Cost Understanding what drives your industry will tell you how to compete Industry Analysis & Life Cycle Industry Analysis Steps Define objectives Interrogate industry behavior Identify the leaders of the industry Identify business and environmental drivers of the industry Determine how the industry interacts with a macroeconomic environment Apply the attractiveness test Life Cycle 1. Birth—Creating, trying to make a better position for yourself. Will also have an element of defending because of the risk. Will probably use a transformational strategy People are entering the industry, others are exiting. If there’s more people entering than exiting, that’s an indication of attractiveness. Formation of barriers to entry Very turbulent, lots of uncertainty The birth stage grows in waves until the market coalesces and dominant strategies stimulate the growth o Compaq computers built the first portable computer. The dominant design in this case was to add a hinge 2. Growth— Whenyoujumpfrombirthtogrowth,establishedplayerscomeintothemarket o 1981 IBM launched the PC, and that’s when it became a huge product Transactional, capturing market share, defending market share You can’t have growth unless you have a significant infrastructure—Tesla is struggling to grow because it doesn’t have strong infrastructure in states other than California No oneis going to rush to build the infrastructure unless theythink the dominant design has popped out Infrastructure barriers slow growth Fueled by clustering—when multiple industries support a primary design. o When cars were invented, tires needed to be made, someone needed to change the tires, gas stations came to exist 3. Maturity—Transformational, transactional. In this phase companies usually focus on economies of scale; driving the cost down to maintain or improve profitability o Smart companies take a portion ofthose savings and invest in R+D to see what’s in the birth and growth phase Sometimes pursue two strategies simultaneously—transformational within the company to make them more productive and 4. Decline Barriers to exit—may not be practical or may not be allowed by law o Union labor, creditors, etc. 5. Death—a company can still be saved in the death phase but your options for strategy are very limited Situational strategies, defending, trying to find a better position Value Chain Analysis (Basic stuff) Vertical Integration (Basic stuff) Vertical integration can become a problem because if you aren’t optimizing your structure you have inherently high fixed costs We saw this in the US steel case Companies become vertically integrated by owning multiple factors of production If you are vertically integrated, you can control price, costs, quality and quantity Often cannot control labor Bargaining Powers (Basic stuff) If there are more substitutes, the consumer has more bargaining power because they can go to a competitor Jungle Fire Jungle Fire elements Resource Allocation—knew what to allocate due to research analysis Capacity adaptation Uncertainty—could be minimized with more information but still existed Foreknowledge—we had a definite start, definite window of time, and the map Strategy behind it Recognize objectives, goals, purpose Form strategy Execute Adjust/adapt Back to strategy Case & Reading Knowledge (8 questions). US Steel Industry Steel Industry Case Five key questions of industry analysis o How is the industry defined? We’re in the manufacturing industry—capital intensive Producing a commodity Commodities are abundant and the buyer has the power It’s resource intensive Water Ore Coal Carbon steel and stainless steel Stainless doesn’t rust, carbon will o What boundaries define the industry? Integrated manufacturers—big steel mills Trade Construction Defense Mini-mills—take steel that’s already been made, melt it and reconstitute it Residential construction Commercial construction Automotive Fabricators Specialty Mass Industry boundaries are often different than the market boundaries o How does the industry behave and interact with ecology? Capital intensive—very expensive to run a steel plant Defense spending effects the steel industry—spend more on defense, more money goes into the steel industry Resources drive costs Buyer drives prices Boundaries (markets) drive behavior Have to watch your supply costs and production costs Vertical integration in this industry gives you a lot of control of the factors of production o What drives industry behavior? Highly cyclical industry Macroeconomic events Clear demand o How fast does the industry change? Harley Davidson Harley Timeline 1901-1917—creating the market, transformational o Innovation o Demonstration 1919-1929—Expanding through military operations, opportunistic strategy o No foreign competition, intense domestic competition After the wars, soldiers bought motorcycles 1929-1939— o Defending against the economy, trying to survive o No employment, no income, no consumption or wealth o Innovation Knucklehead 1940—WWII o Expanding, wartime production 1946-1960 o Huge expansion WWII veterans Industrialization of the economy Lifestyle changes 1961-1970’s o Defending against competition o Japan comes in o Germany starts selling o Lifestyle o IPOAMFloss of identity 1970-1980’s o Defending, still declining 1983-1990 o Creating, Expanding o 1986 EVO2 engine o Innovation is creating the market o Quality improves Questions to ask What factors contributed to the decline of H-D? o Cyclical industry o Competition entering o Bad quality products o Image of the company How did H-D turn itself around? o Focused on the image of the product and its lifestyle connotation o Gathered loyal customers o Drove resales through their image o Relied on merchandise and style to help sell the lifestyle How did they go about changing operations? o Visited Japan to understand how the Japanese were building motorcycles o Confronted reality realizing their company was inferior o Hired Accenture who brought in Enterprise Resource Planning—a lot of the tech that Harley would use to automate its plants WalMart (Both cases) Porter Model Marketplace Mobility barrier early 1900’s Breaks off before the prestige (high price, high image) stores Built on discrimination Had to be white and affluent to shop at these stores Woolworth’s and Grant’s were the “every person” stores After Sears Catalogue is blind to social class, ethnicity, etc. so everyone can shop there Entrants Consolidators—Woolworth’s and W.T. Grant Sears—doesn’t consider pricing, looks at distribution and selection All stores are brick and mortar so Sears introduces the catalogue Allows Sears to circumvent the issue of the physical location Circumvent the pricing barriers by moving to a standard price Prices are standard across the country Sears becomes the first store with low price, higher image (still not great image) Sears creates a private label Open their own profit sharing in 1916—first time employees shared profits Consolidation of power—Sears consolidates the power by selling so many different categories, including insurance Had their own credit card so you could use their credit to buy their products 1945 Sears sells over a billion dollars 1970’s mom and pop stores are wiped out Kmart enters this space Sears attracts two other competitors Ward’s and Penny’s also start to compete on the catalogue level Kmart—enters the market in the 1970’s with low price, low image. Competes on price with a good selection Competes on economies of scale with huge volume Distribution was brick and mortar Advertising—newspaper Introduces the term off-price Pricing off of and lower than the catalogue Blue plate special—whatever you had yesterday you mix together today Surplus food, loss leader, low price food you could buy anywhere At Kmart—blue light special Took a shopping cart with a blue light on it and put specific items on sale to drive volume Opened 271 stores in 1976 Have a faster turnover than Sears Even though average price per item is cheaper, their sales make up for it so their sales per sq. foot is higher than Sears Kmart starts to put pressure on the low price, high image sector in the 1980’s Walmart—began opening up stores 7 times faster than Kmart Everyday Low Price (EDLP)—higher than discount and low , lower price than average and high Keep quality up with EDLP strategy Used military installations as the base for his customers Focuses on rural areas Their strategy was to go where the enemy wasn’t They created, then expanded Now they’re almost entirely defensive Costco is threatening Target—slightly higher image, slightly higher price Suppliers—the stores Basis of competition if you’re a store is through distribution and pricing with a factor of selection Buyers—us We have very low power in this market Only power is whether we can buy or not Substitutes Use PESTEL to analyze China Political Still a communist country Very monolithic political system that does understand economics Creates a political system that invites foreign investment (because it can’t afford to build infrastructure itself) Jurisdictionally oriented—you pick where you want to go Economy Economy has been in transition for about thirty years Largely illiterate and agrarian to more educated Outside of the city is still impoverished Wealth in the country comes from The cities Foreign investment Bending the currency value Society Culturally people were trained to want to shop at smaller stores Freshness was a concern—thought Walmart wouldn’t have fresh product Selection—preferred more local product vs international brand How do most people live? Chinese want an even lower price than in US Don’t buy in bulk like US does—like small parcels This is because the Chinese don’t have a lot of cars—have to be able to get everything home US wants a wide selection you can get everything at one shop, China likes specialty shops (one shop for each category focus) US is transaction oriented—we want speed and ease. China uses shopping as a social experience China allows price negotiation as a cultural tradition Walmart model— Size Speed Infrastructure Technology Habits The Chinese experience doesn’t fit with the Walmart model Technical infrastructure Lack of roads Don’t have the same data communication analysis China has the most people using the internet of any country, but ranks 88 in the number of transactions occurring over the internet Environment Favorable to business Legislative China is friendly toward foreign investment Communist government can nationalize the business any time they want which makes this risky Result—the Walmart business model doesn’t fit into the culture of the company Walmart in India Does India have better infrastructure than China? Not really, has a lot of railroads but other than that infrastructure is still low Have a lot of people What did Walmart miss in India? Indians don’t have cars Purchasing power is lower than China Still have a caste system Poverty is higher Politics in India Lack of political awareness hurt Walmart Had to pay 100 million just to get the license to go into the market Each providence/state required this money Walmart was only looking at the number of people in the market. Felt invincible because of their volume and ignored other factors Need to understand the culture of a market before you enter it Walmart had a lack of due diligence Focused only on population
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