Week2 MGMT 4870
Popular in STRATEGY & POLICY
Popular in Business, management
This 34 page Class Notes was uploaded by yaya on Sunday October 18, 2015. The Class Notes belongs to MGMT 4870 at Rensselaer Polytechnic Institute taught by William M. Tracy in Fall 2015. Since its upload, it has received 41 views. For similar materials see STRATEGY & POLICY in Business, management at Rensselaer Polytechnic Institute.
Reviews for Week2
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/18/15
Agenda Housekeeping More on memo assignments Introduction to corporate strategy Microeconomics review Strategic Positioning Grading so far Rather than counting the grades from your rst two case classes individually I will look at the rst two participation grades take the highest one and count it twice I will look at the rst two quiz grades take the highest and count it twice Hence I m effectively dropping your lowest grade among the rst two grades Syllabus Change quot Next 2 Class lam switching the order of the next two classes Hence we will have a lecture on Game Theory this Friday Sept 18 the Dell case will be on next Tuesday Sept 22 Moving forward Everyone should now have a copy of all the readings Either you bought the print in the bookstore or bought the digital copy from HBS Press Everyone should have signed up for a rst memo by the end of class today Agenda Housekeeping More on memo assignments Introduction to corporate strategy Microeconomics review Strategic Positioning Memo overview Answer the question In the first sentence In the first paragraph In the whole essay You must acknowledge any obvious weaknesses of your plan But never waiver from your position even for a paragraph Conclude large End with some thoughts on the bigger picture How does your proposed strategy position the rm for years 5 through 10 Structure Structure STRUCTURE Sentence structure How many clauses are in each sentence If three clauses try to break into two sentences If more than three clauses you MUST break it multiple sentences No sentence should be more than three lines long ever Paragraph structure Paragraphs should m be more than 23 of a page Every paragraph has main idea sentence Often the main idea sentence comes rst All the other sentences in that paragraph supports that main idea sentence Adds details to the main idea helps to build a logical argument for that main idea etc Suggested Memo Structure First paragraph lays out complete argument your answer and the best reasons why your right Next paragraphs each focus on one of your reasons Some reasons will take more than one paragraph but breaks must be logical It s good to have a paragraph or two that acknowledges some obvious weaknesses of your po on BUT DO NOT WAIVER IN YOUR POSITION Even for a paragraph Final Paragraph quotlooks at bigger picture Suggestions for editing On a DRAFT copy underline the main idea sentence for each paragraph Does every other sentence relate to the main idea Count how many clauses are in each sentence Examine the length of each sentence Examine the length of each paragraph Examine the overall structure of the memo Final thoughts on memos Write like a business person not a student Do not write in 1St person write in 3Irol person Do not use casual or informal phrases Be on time Assume you re smarter than your reader DON T BE CONDESCENDING but be clear Show me the link between every argument and the decision you re supporting Don t make grand pronouncements about the way the world works in general Agenda Housekeeping More on memo assignments Introduction to corporate strategy Microeconomics review Strategic Positioning Firms matter Industry Matters Avg Spread between the return on equity and the cost of equity 1984 2002 40 Toilelly 8 Cosmelic Tobacco 30 Soil Dr39 ts Pharmaceutical Med swpies 20 I I I I I I I I I 0 200 400 600 800 1 000 1 200 1400 1600 1 800 2000 Avg Equity 3 1984 2002 Source Compustat Value Line Marakon Associates analysis Reprinted from HBSPress 9798062 Porter s Five Forces Model of Industry Structure A POTENTIAL ENTRANTS Threat of new entrants Bargaining power Bargaining power of suppliers INDUSTRY of buyers COMPETITORS SUPPLIE u lt BUYER Rivalry among Existing Firms Threat of substitute products or services ESUBSTITUTES Source DLE Text 2008 Resources ntraindustry Pro tability Differences Figure 2a Economic Profits in the Pharmaceutical Industry 19842002 Mylan Laboratories Watson Phamaceuticals Inc Covance Inc Forest Laboratories Cl A Albany Molecular Res Inc Pharmaceulical Prod Dev Inc Av S read 39 1 384 King Pharmaceuticals Inc N n disk NS ADR 40 Scheri Plough N Vam5 AG 39 ADR ldec Pharmaceuticals Corp Merck 8 c0 Bristol quotyes squbb Barr Laboratories Inc enigo Co Uly Eli 8 Co Ivax Corp P zer hr Wyeth Andrx Corp 20 0 quot 39393939 39 I Medicis Phannaceut Cp Cl Pa I I gne39z oylnd39m 39 Icn Pharmaceuticals Inc reXe n a TD Ouinules I ransnatlonal Corp 20 Aventis Sa ADR Chiron Corp Protein Design Labs Inc Sicor Inc Gilead Sciences Inc 40 Enzon Phannaoeuticals Inc Abgenix Inc Ne BCephalon Ilnc urocnne Ioscrences no 60 Tularir Inc Medimmune In cgledare g rg Nelrtar Therapeutics 80 I I I I I I I I I I 0 5 10 15 20 25 30 35 40 45 50 Avg Equity SB 1984 2002 Source Compustat Value Line Marakon Associates analysis Reprinted from HBSPress 9798062 quotWhat s a rm to do How should you determine a rm s optimal areas of operation Depends on your objective How do you determine your objective Shareholder Value quotWe are here to serve the shareholder and create shareholder value I insist that the only person who owns the company is the person who paid good money for it Robert Lutz Former ViceChairman of Chrysler Terminology Stakeholder Stakeholders are individuals or groups who have a stake in the success of the organization Who can be a stakeholder Stockholders owners Suppliers Employees Creditors Community members Customers Managers Government Anyone De nition source Dess Lumpkin and Eisner 2008 Corporate Governance US Shareholders Owners Board of Directors Workers Union Management 39 quotquotquot 39 39 gt Others Government Which Stakeholders Matter International Differences US Some laws require a degree of accountability to employees and society at large but owners are typically the most important group By at senior managers often emerge as another extremely important stakeholder group Germany Legal system enforces balance in the weighting of different stakeholder groups Labor and community are particularly important China Government emerges as a major stakeholder in both public and private rms 10 Finding Common Ground The major differences between stakeholders involves the constraints imposed on the rm s path to prosperity Most stakeholders would like the rm to develop a sustainable competitive advantage over rivals especially foreign rivals Sustainable Competitive Advantage 11 Advantage You can think of a firm s advantage as The difference between its cost and its customer s willingness to pay Competitive Advantage A firm is said to have a competitive advantage if the difference between its costs and its customers willingness to pay exceeds that intraindustry competitors ful lling similar customer needs 12 Sustainable Competitive Advantage A firm is said to have a sustainable competitive advantage when we expect difference between its costs and the customers willingness to pay will exceed that competitors fulfilling similar customer needs for the foreseeable future Sustainable Competitive Advantage 13 Agenda Housekeeping More on memo assignments Introduction to corporate strategy Microeconomics review Strategic Positioning Microeconomics A quick primer for strategists speaking to both our external and internal analyses 14 Thought Experiment I like getting money So I ll offer to sell points towards your nal grade at 1 cent per point Eventually the Dean will shut me down so this is a onetime offer today ie for 1 today you are guaranteed an A and for the rest of the semester you can work as much or as little as you like How many points do you want to buy Thought Experiment What if I raised the price to 1 dollar per point If today was the only day you could by points how many would you buy What if I charged 4 dollars per point What if I charged 10 dollars per point What if I charged 100 dollars per point 15 One s demand typically decreases as the price increases Figure 1 Demand Curve for an Individual Buyer Units Bonus question Can anyone tell me a story in which this isn t true What do we call that Van Wilder s Richard Bagg The stuckup rich kid Really Rich Not so smart Desperately want nancial success Engaged to the woman anti hero Van loves How much would he pay for an A Is it more than you 16 Van Wilder s Richard Bagg Van Wilder s Richard Bagg The stuckup rich kid Really Rich Not so smart Desperately want financial success Engaged to the woman anti hero Van loves How much would he pay for an A Is it more than you 17 We can add up individuals to get the aggregate demand Figure 2 Market Demand Curve Constructed from Individual Demand Curves Buyer 1 39 Buyer 2 Buyer 3 I I I l l I I I l I l 5t Units Market l l l I l i I l I l l How should price grades to maximize my pro t 18 IVIore Pricing Thoughts If Daniel Cosgrove was in my class how much should I charge What if I can t charge each person a different price Price Discrimination Determining Industry Supply In Price Taking Industries each firm produces at it s marginal cost In Theory We can sum up individual rms marginal costs curves now supply curves to get the industry supply curve In nonprice taking markets we can still aggregate the individual rm s supply curves but these curves are no longer equal to the marginal cost curves Market Equilibrium Figure 9 Equilibrium in the Market for Oranges Demand Supply Pclearing h 39 39 I l l I Plow39 Jl I l l g 392 l qupplied QClea39ing Qdemanded Quantity of Oranges Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges Demand Supply Pclearing h 39 39 I l l l Plow39 Jl I l l g 392 l qupplied QClea39ing Qdemanded Quantity of Oranges 20 LOG a sangrednet Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges i quppied Odea ng Qdemanded Quantity of Oranges 21 Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges Demand Supply F cle g h 39 39 l L PI quotquotquotquot quot l i i qupplied Qdea39ing Qdemanded Quantity of Oranges Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges Demand qupplied QC39ea39ing Qdemanded Quantity of Oranges 22 Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges qupplied QClea39ing Qdemanded Quantity of Oranges Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges Demand l I I qupplied QClea39ing Qdemanded Quantity of Oranges 23 Market Equilibrium The Tooth Fairy of Economics Figure 9 Equilibrium in the Market for Oranges Demand Supply Pclearing I I l l I L Plow I l I l I I I I qupplied QC39ea39ing Qdemanded Quantity of Oranges Shifts Figure 11a An Increase in Supply Figure 11b An Increase in Demand Demand Old Supply Supply New Supply New Demand Old Demand Units Units 24 Example Battery Science Discovery Grapheneenrichment of lithium ion batteries could improve capacity and recharge rate by up to 10 times Discovery Copper hexacyanoferrate based highcapacity batters last longer cost less and produce less waist than traditional batteries Working Prototype Engineers built a working prototype of a nanowire batter Shifts Demand Figure 11a An Increase in Supply Old Supply Figure 11b An Increase in Demand Supply New Supply New Demand Old Demand Units Units 25 Example Tainted Japanese Food 31111 Tohoku earthquake and tsunami causes uncontrolled radiological event in Japan Concerns about food safety drive demand for imported food including US beef In Nov 2011 Japan was the largest importer of US beef At 853 million the value of US beef imports was up nearly 40 percent from November 2010 SourceDrover s Cattel Network httpwwwcattlenetworkcomcattlenews USMEFUSbeefexportsreadytototalover5billionin2011137304283htm Figure 11a An Increase in Supply Figure 11b An Increase in Demand Demand Old Supply Supply New Supply New Demand Old Demand Units Units 26 When are we not shifting In reality there are typically multiple shifts going on at any time People are not omnipotent they need to learn about the new conditions in the market so adjustments do not happen instantly Think of the equilibrium point as an attractor not a description of where the market will be at any given point in time Perfect Competition The quotHonest Politician of Economics Products are identical Firms are small and identical All buyers and sellers have complete information Free and instant entry Free and instant exit What should pro ts be in such an industry 27 Why is Perfect Competition the quotThe Honest Politician of Econ Products are identical Firms are small and identical All buyers and sellers have complete information Free and instant entry Free and instant exit Firms make zero pro ts Perfect Competition Ta keaways for strategists The less an industry resembles perfect competition the more likely we are to see persistent pro ts in some rms within the industry Understanding how a particular market differs from perfect competition can help you gure out the sources of pro t in that industry Moving your industry further away from perfect competition should increase pro ts at the industry level 28 Pushing an Industry Towards PC can be pro table for some rms Examples Orbits Expedia Collectively these rms have pro ted by increasing buyer information However total travelagency industry revenues have declined Porter s What is Strategy What types of strateies yieid sustainobie oompe ye advantage 29 Operational Effectiveness Operational Effectiveness the efficacy with which a rm creates produces sells and delivers a product Superior Operational Effectiveness creating producing selling and delivering a product or service faster or with fewer inputs and defects than rivals Adapted from M Porter s What is Strategy Competitive Convergence Porter argues that simply increasing a firm s Operational Effectiveness is not in itself a strategy that produces a sustainable competitive advantage If all rms in an industry benchmark each other and adopt best practices then the gains from improving operational effectiveness ow to the consumer 30 Strategic Positioning Porter argues that to maintain a sustainable competitive advantage a rm should perform unique activities This only works if There is a tradeoff involved in pursuing the unique set of activities in question Performing the unique activities increase the efficiency with which those activities are preformed Economic Logic Profitability with many direct competitors Profitability with no direct competitors How do you keep competitors out Incumbent competitors Tradeoffs Functional Fit New Entrants amp Incumbent Competitors Economies of Scale Acquisition of positionspecific assets tangible amp intangible Network Effects 31 Economic Logic Pro tability with many direct competitors Pro tability with no direct competitors How do you keep competitors out Incumbent competitors Tradeoffs Functional Fit New Entrants amp Incumbent Competitors Economies of Scale Acquisition of position speci c assets tangible amp intangible Network Effects First Mover Advantage 32 First Mover dis Advantage Being a First Mover is good if it enables a rm to develop entry barriers before others can enter the space Being a First Mover is bad if entering the space requires the rm to make costly investments which can be cheaply appropriated by rivals Strategies for Strategic Positioning 1 Varietybased positioning 2 Needsbased positioning 3 Accessbased positioning Note these categories often overlap 33 PWF Subaru Varietybased positioning Needsbased positioning Accessbased positioning Not strategically positioned 34
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'