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USC / Business / BUAD 497 / What is the meaning of strategy?

What is the meaning of strategy?

What is the meaning of strategy?


School: University of Southern California
Department: Business
Course: Strategic Managment
Professor: Michael mische
Term: Fall 2016
Tags: strategy and Management
Cost: 50
Name: BUAD 497 Midterm Study Guide
Description: These notes follow the study guide concepts sent out by Professor Mische and give my take on the case studies we've completed thus far. If you have any questions, feel free to email me at elaurien@usc.edu
Uploaded: 10/10/2016
9 Pages 76 Views 17 Unlocks

Midterm Study Guide

What is the meaning of strategy?

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

What did walmart miss in india?

∙ 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 We also discuss several other topics like What are the four megatrends that will change the world?

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

Does india have a better infrastructure than china?

We also discuss several other topics like What is hyperglycemia?

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?If you want to learn more check out What is confucianism?

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 We also discuss several other topics like How polymers are formed

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 If you want to learn more check out What is the theoretical significance of the u.s. declaration of independence?

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 We also discuss several other topics like What is kinship?

∙ % 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—

∙ When you jump from birth to growth, established players come into the market 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 one is going to rush to build the infrastructure unless they think 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 of those 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  


∙ 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 IPO????AMF????loss 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 88th 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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