Strategic Management
COURSE PERSPECTIVE
This course is concerned with the long-term strategic success of the (for profit or not-for-profit) business organization. It deals with identifying and analyzing past and current strategies, with formulating new ones and with implementing them through the organization operating in the global economic environment.
Our perspective is that of the general manager who has overall responsibility for the performance of a business unit within the firm or of the firm itself. Such a manager needs to understand the basis for the current performance of the firm and to identify those changes (inside or outside the firm) that are most likely to affect future performance adversely or to provide opportunities for the firm to improve its performance. The manager must then develop a strategy that uses the company's position and capabilities to compete successfully in its new environment. The manager must also design and put in place an organization through which the strategy will be implemented.
Of course, general managers need to understand the functional areas of the businesses they manage. Indeed, we shall frequently draw on expertise developed in the functional courses in the Sloan curriculum. However, the general manager's role is not simply to oversee those functional areas, but rather to set strategic direction for the firm and to coordinate the activities of the firm to help achieve its strategic goals.
Increasingly, this role can only be understood in the context of the global economic environment. The globalization of the world economy presents tremendous opportunities for firms to grow new markets, acquire and integrate new ideas, and enhance the efficiency of their operations. At the same time, the realization of these possibilities requires overcoming tremendous managerial challenges. The identification and exploitation of market opportunities, the coordination of organizational components, the transfer of learning, and the formulation of effective non-market strategies all become much more complex in the global context. For this reason, although we will formally devote only one session to globalization issues, the cases have been chosen to feature companies from several countries and many involve issues where the fact that the company is operating internationally is central. The course next quarter in International Business will give further opportunities to explore these matters.
Further information on the logic and flow of the course is provided in Section 4 of this document, which describes the class schedule. You should familiarize yourself with that now so that you have an idea of how the quarter will proceed.
REQUIRED TEXT
Strategic Management; Garth Saloner, Andrea Shepard, Joel Podolny, John Wiley & Sons; 2001.Other readings are listed in the course outline.
COURSE OBJECTIVES
The main objectives for the course are as follows:
Developing and reinforcing a general management perspective. Because the opportunities and challenges faced by a general manager, particularly one in a multinational firm, are beyond the purview of any one analytical discipline or organizational function, the course is necessarily multidisciplinary and multi-functional in its foundations. The course aims to apply skills and knowledge covered in other Sloan courses and to introduce additional tools that are particularly important to general managers.
Understanding the fundamental concepts strategy: strategy identification and evaluation, firm strategic analysis, industry analysis, competitor analysis, firm and industry evolution, strategic and organizational responses to external changes, corporate strategy (diversification strategy and managing the multi-business enterprise), and divisional strategy (strategic management of a division within a larger corporation).
Understanding the fundamental nature of organizational design choices, the impact of organization on capabilities and strategic options and the need for fit between strategy and organization.
Highlighting the knowledge, skills, and resources that will most assist the general manager in making effective decisions and undertaking successful actions in the global context.
Developing habits of orderly, analytical thinking and skill in reporting conclusions effectively in written and oral form.
SESSIONS AND READING ASSIGNMENTS
All materials referred to below are included in the course packet, are from the Saloner-Shepard-Podolny text, or will be distributed before the relevant class session.
The structure of the course and the readings for each session are described below. We summarize the primary themes in each section of the course and describe the readings for each class session.
Introduction
The course begins with an introductory case that foreshadows many of the issues we will be covering. As we shall observe in this case and throughout the course, it is often difficult for a manager to decouple market, non-market, and organizational challenges that must be met by an effective strategy, particularly in a global setting. Accordingly, a manager must develop a holistic approach to meeting these challenges.
Session 1
Case: AT&T in China (A)
Readings: Saloner, Shepard & Podolny ("SS&P"), Chapter 1.
Michael Porter, "What is Strategy?" Harvard Business Review November 1996
Study Questions:
A. AT&T is making a major commitment to China. If the aspirations that Warwick had when he took the job were to be realized, fully one-quarter of AT&T's people and business would be there by the year 2000. How would you evaluate this decision?
B. Warwick faces major strategic, non-market, and organizational issues: How to compete in China, what to do about the issue of China's MFN status, and what about the problem of "21 AT&T's." How, if at all, are they related? What are his options? Give specific recommendations for strategies to address each and their implementation.
Strategy Definition and Identification
This section of the course is concerned with basic issues in firm-level business strategy. We define what we mean by strategy, arguing that a strategy articulates the firm's long-term goals, the scope of its activities, its source of competitive advantage and the logic through which that asserted competitive advantage will be realized and will enhance firm performance. A sound strategy will be responsive to the firm's external environment and the limitations and opportunities implicit in its capabilities and position. We will also address the issue of the sustainability of the firm's competitive advantage.
Session 2
Competitive Advantage and Logic
Case: Mark Twain Bancshares
Reading: SS&P, Chapter 2
Study Questions:
A. Write a short statement that summarizes Mark Twain Bancshare's strategy in the 1984.
B. How well suited is Mark Twain's strategy to the environment in which it operates?
C. What is the role of the Boards of the banks?
D. MTB is noted for being a major employer of MBAs and for the distinct art and architecture of the bank. How do you think these features relate to the bank's competitive advantages?
E. How sustainable is MTB's competitive advantage? In particular, how easily could a rival-either another local bank that wishes to mimic MTB's strategy or a large, money-center bank such as Citibank-steal away MTB's customers?
Session 3
Positional Advantages and Capabilities
Cases: Kao Corporation
Kao in Europe 1992
Reading: SS&P, Chapter 3
Study Questions:
A. What is Kao's strategy in Japan? Why has it been so successful there? In particular, what are the nature and sources of its competitive advantage? Are these capabilities or positional advantages? How does the design of its organization support the strategy?
B. How do you evaluate Kao's international expansion? What have they done right and wrong? Why is their performance so disappointing?
C. What recommendations would you make to Kao concerning its internationalization?
Organizational Design
The organization is the means through which strategy is implemented. Thus, as business historian Alfred Chandler asserted, "Structure follows strategy." Yet it also sets the context in which strategy is chosen. Thus, as John Browne of BP asserts, "Our organization is our strategy." In these three sessions we will focus on organizational design. We examine the ways in which the firm's people, architecture, routines and culture interact to solve the coordination problems and the motivation or incentive problems faced by the firm. We also explore the alignment of the firm's organization design with its strategy, arguing that the firm's strategy implies the kinds of incentive and coordination problems that are most important to firm performance.
Session 4
Organizational Design for Performance
Cases: British Petroleum (A1): Organizing for Performance at BPX
British Petroleum (A2): Organizing for Performance at BPX
Note: Read the A1 case and think about what you might do in John Browne's shoes. Then read the A2 case to see what was done.
Readings: SS&P Chapter 4
"New Notions of Organisational Fit," Richard Whittington, Andrew Pettigrew and Winifred Ruigrok, Financial Times, special insert on "Mastering Strategy" pages 8-10, November 29, 1999.
#"The Global Oil Industry," Stanford case IB 15
# Paul Milgrom and John Roberts, Economics, Organization and Management(Prentice Hall, 1992) pages 90-92 and 106-116
Study Questions:
A. BP, led by BPX, has gone through a major restructuring. In the organizational design implemented in the case, what are the roles of the business units, the peer groups, the stream executive committees and (to the extent you can determine this from the case) corporate headquarters? What is the logic behind this architecture?
B. BP's management systems feature a major focus on performance contracts. How do you evaluate its performance measurement and reward system? What aspects, if any, seem particularly innovative to you?
C. What seem to be the most important elements of the culture at BPX? How do these contribute to generating performance?
D. How do the elements of the organization design fit with one another?
E. What issues/difficulties/problems would you expect to arise under this organizational design? For example, there are a variety of matters that have impact across business units/assets at BPX and that affect the firm more broadly, such as health and safety, environmental issues, community relations, and so on. How well do you think the current structure handles these? If you think there might be a problem with these or other issues, what organizational changes would you recommend to address them?
Session 5
Creating Organizational Learning
Case: British Petroleum (B): Focus on Learning (skim pages 10-15 on IT)
Reading: # Morten Hansen and Bolko von Oetinger, "Introducing T-Shaped Managers: Knowledge Management's Next Generation," Harvard Business Review March 2001 (Note: BP does not use BCG as its principal management consultant.)
Study Questions:
A. BPX has put in place a number of mechanisms to promote learning and enhance performance. How effective are they?
B. Is there any way in which the focus on learning might detract from performance? How is this handled?
C. Is there any reason to expect that BPX is more effective at learning than its more centralized competitors, like Exxon? If so, is there any way that BP can turn its learning into a competitive advantage?
Session 6
Explorers and Exploiters
Case: 3M: Profile of an Innovating Company
Reading: SS&P, Chapter 5
James G. March, "Exploration and Exploitation in Organizational Learning." Organizational Science
Study Questions:
A. What are the distinctive features of 3M's organizational culture?
B. What policies and practices support exploration at 3M?
C. Are there some types of markets or products in which you would expect 3M to be more likely to be successful? Are there some types of markets or products in which you would expect 3M to be less successful?
D. Consider the policies adopted by DeSimone. What is the likely impact of these policies on innovation at 3M? What changes in the policies would you recommend (if any)?
The External Context: Industry and Competitive Analysis
In this section of the course, we turn our attention to the external environmental factors that determine firm performance. We introduce a framework for conducting an industry analysis that will enable the general manager to identify the industry characteristics that affect the performance of all the firms in the industry. The framework we will use involves thinking about the value chain for the industry and the factors that determine how that value is distributed among the participants in the chain. We examine a variety of industry structures to see how structure affects strategy and performance, competitor analysis, and strategic interactions over time.
Session 7
Introduction to Industry Analysis
Case: Airborne Express (A)
Readings: SS&P Chapter 6
Study Questions:
A. Using SS&P Chapter 6, perform an industry analysis of the express mail industry in 1997. Be prepared to discuss (and quantify, where possible) buyer and supplier power, competition and barriers to entry and the value
chain in which the industry participates. Is this an industry in which firms can expect to earn an attractive return over the long run?
B. How has Airborne survived, and recently prospered, in its industry? Is its success attributable to its capabilities, its position or industry attractiveness?
C. Provide a more detailed analysis of Airborne's sources of advantage. First, how does the willingness of customers to pay for Airborne's products compare to their willingness to pay for its competitors' products? The case provides data to evaluate this qualitatively. Second, what is Airborne's cost position relative to Federal Express. The case provides detail to compare the cost of an overnight letter shipped by Airborne to one shipped by Federal Express.
D. What should Brazier do to strengthen the company's position in the future? Include in your analysis how to respond to distance-based pricing and whether Airborne should move toward a closer relationship with RPS.
Session 8
The Spectrum of Competition and "Niche" Markets
Case: KQED
Reading: SS&P Chapter 7
Study Questions:
A. Using SS&P Chapter 6, perform an industry analysis of KQED's industry (you will have to decide which industry this is) before cable. Be prepared to discuss buyer and supplier power, competition and barriers to entry and the value chain in which the industry participates.
B. How does the rise of cable affect this industry analysis? Does cable make this industry more or less attractive?
C. What strategic assets does KQED depend upon to compete successfully in the industry? Is its success attributable to its capabilities, its position or industry attractiveness?
D. What do you think of KQED's strategy pre-cable? How is KQED's strategy affected by its non-profit status?
E. How should KQED react to the change in the industry brought about by cable? What do you assume that KTEH in San Jose and KCSM in San Mateo will do, either on their own or in response to your strategy?
Session 9
Concentrated Markets and Strategic Interactions
Case: Samsung Electronics' Semiconductor Division (A)
Reading: SS&P Chapter 8
Study Questions:
A. How attractive is the semiconductor industry and, in particular, the DRAM business? Justify your answer.
B. Why is the industry's performance so cyclic? Other highly concentrated industries are often able to avoid intense price competition. This industry usually does not, at least when demand is weak relative to capacity. Why?
C. Samsung Electronics is part of the Samsung Group, one of Korea's mightiest chaebol. How has this membership affected its strategic options and actions?
D. The case gives relatively little information on non-memory parts of the semiconductor industry. However, thinking about the strategic and operational reasons why Samsung has been successful in DRAMs, are you optimistic about its chances for success in the non-memory business? Why or why not?
E. Should Samsung embrace the Rambus design? Why or why not?
Session 10
Managing Entry
Case: CEMEX, S.A. de C.V.: Global Competition in a Local Business
Readings: SS&P Chapter 9
Study Questions:
A. Why are global companies emerging in the cement business? What is the advantage of being global?
B. The case indicates that Cemex's move into Spain was a "strategic" move to counter Holderbank. What might be the detailed logic behind this?
C. What is the basis for Cemex's competitive advantage? How does the strategy of expanding via foreign acquisitions exploit this? How has this strategy evolved?
D. How should Cemex view the developments in Southeast Asia? Should it look to make acquisitions there? What factors should enter the decision? What countries should it consider? Is there a way to mitigate the risk if it decides to expand there?
Session 11
Strategy in Markets with Demand Side Economies of Scale
Case: Sony Corporation enters the Entertainment Business
Reading: SS&P Chapter 12
Study Questions:
A. What examples of demand-side economies of scale are presented in the case? What is the source of these in each instance? How important has "tipping" been? What strategies have been followed to compete in the presence of these DSIRs?
B. Is having the ability to produce "software" for a new consumer electronics "hardware" format necessary and/or sufficient for success of the new hardware? Does it help? Why or why not?
C. Using the information in the case (i.e., not drawing on what you may know to have happened since), how do you evaluate the decision to buy CPE? If you think it made sense, what is the basis for this conclusion? If you think it was a bad decision, what is the basis for this conclusion and why do you think that the acquisition decision was made?
D. Given that it had bought CPE, how should Sony have planned to manage it?
Session 12
Industry and Competitor Analysis for Emerging Markets
Case: Lion Nathan and the Chinese Beer Industry
Reading: Ayala, Jim and Richard Lai, "China's consumer market: A huge opportunity to fail?" McKinsey Quarterly
Study Questions:
A. Perform an industry analysis of the Chinese beer industry before the wave of foreign investment began. Is this a good industry for national incumbents? How attractive does it seem for new, foreign entrants?
B. Are there factors which are taken-for-granted in doing an industry analysis in a developed economy that need to be treated explicitly in analyzing the Chinese situation? What are they?
C. What capabilities seem especially important for successfully entering and competing in an emerging market like China?
D. Among Anheuser Busch, Heineken and Lion Nathan, which do you think most likely to succeed? Focusing on that company, prepare an analysis of that company's strategy and explain why you think it most likely to succeed. Indicate any significant uncertainties or challenges that must be met and any strategic changes you would recommend.
Value-Chain Strategies
In the next two classes we will look at the strategic management of the value chain, considering both the channel of distribution between the firm and its ultimate customers and the supply chain of input providers. The accent here will be more on creating greater value than on capturing value, as is normally the case in dealing with competitors. We will also look at the organizational design issue of setting the boundaries of the firm.
Session 13
Creating Value in the Channel
Case: Skil Corporation
Reading: SS&P, Chapter 10
Study Questions:
A. Conduct an industry analysis of the portable electric power tool industry in 1979. Where on the spectrum of competition described in SS&P Chapter 7 is this industry?
B. What are the major dimensions along which products are differentiated in the industry? How well is Skil positioned relative to its major competitors?
C. What changes in competitive positioning are helping/threatening Skil?
D. Define a set of strategic options for Skil. Which option would you recommend? Why?
Session 14
Managing the Supply Chain
Case: Johnson Controls, Inc. Automotive Systems Group: The Georgetown Kentucky Plant
Reading: #Milgrom and Roberts, Economics, Organization and Management, pages 134-140, 552-569 (skim the material on co-ops)
Study Questions:
A. When procuring an input, what factors favor obtaining it internally ("make") versus procuring it from outside suppliers in arm's-length dealings ("buy")?
B. What are the main specific investments involved in supplying the auto industry? How are incentives for creation of these assets traditionally provided in the US industry? In the Japanese?
C. What is the underlying logic of each system of organizing procurement (US and Japanese)? Identify the distinguishing characteristics of each system for managing procurement and explain the rationale of each.
D. Under what conditions would the Japanese approach tend to be preferred to the traditional US one?
E. At the time of the case, Toyota was planning on adding a second assembly line to the Georgetown plant on which a different line of cars would be built. It would be possible to have different suppliers for each of the two lines. Johnson Controls' Georgetown plant very much wanted to win the business supplying seat assemblies to this line as well as the existing one, where the Camry sedans and station wagons were being made. As the manager at Toyota in charge of purchasing, would you give Johnson Controls the business of supplying the new line? Justify your answer.
Dynamics
In these two classes we look at two issues around the dynamics of strategy. The first relates to industry evolution and strategic change. The second involves the impact of increasing globalization on strategy and organization. Next quarter you will have an opportunity to explore some of these in more detail in electives and in the required international business course.
Session 15
Industry Evolution and Strategic Change
Case: Nokia Corporation: Innovation and Efficiency in a High-Growth Global Firm
Reading: SS&P, Chapter 11
Study Questions:
A. Where in the Industry Life Cycle model of Chapter 11 would you put the mobile phone business in 1992? Where would you put it now? How well does the model seem to fit the industry? What accounts for any divergence you perceive?
B. How do you account for Nokia's success through 2000? What were the nature and role of strategy at Nokia in the 1990s? How and why did strategy evolve? What role did organization play in Nokia's success?
C. In terms of the explorer/exploiter dichotomy, where would you put Nokia? Is this a viable position going forward?
D. Evaluate NVO as a response to the perceived need for innovation beyond the bounds of current technologies and customers.
E. What do you think are the (at most) three most important strategic challenges facing Nokia at the time of the case? Why do you think these to be the most significant? What would you recommend that it do to meet them? How would implementing your proposals affect Nokia's ability to meet the other challenges you thought were less pressing?
Session 16
Strategy, Organization and Globalization
Case: Daimler Chrysler Commercial Vehicles Division
Reading: SS&P, Chapter 13
Study Questions:
A. Is the commercial vehicles market a global one? Why or why not? Is the industry global? In what sense?
B. What organizational challenges does the CVD confront in trying to expand its presence in Asia? How should the CVD address these challenges?
C. The merger with Chrysler seems to imply some increasing centralization of decision-making in the organization. What are the pros and cons of this centralization? Should the CVD accept or resist the movement toward greater centralization?
D. In the case, Dr. Lauk asserts that only "global players" will survive in this industry. Do you agree or disagree? Why? Is CVD global now? In what sense? What should Lauk do to make CVD more global? Would this be a good idea?
Corporate Strategy
This part of the course considers corporate strategy. Corporate strategy is concerned with selecting the lines of business that the firm should pursue. This in turn depends on how having these businesses under common ownership and management will create extra value. These are organizational as well as strategic issues because coordination and motivation problems are both created and solved by introducing a top office (corporate) that has authority to allocate resources and intervene in the activities of separate lines of business. How then does the corporate center add value? Because adding value often involves leveraging the firm's strategic capabilities or position in one business into its other businesses, the analysis in this section builds upon our analysis of strategy in a single line of business.
Session 17
Strategic Rationale for Diversification
Cases: The Walt Disney Company: The Entertainment King
Reading: SS&P Chapter 14
Study Questions:
A. Why was the company so successful under the direction of Walt Disney? Why was the period following his death a difficult one for the Disney companies?
B. By 1984, Disney was a multi-product entertainment company. How were its various businesses related to each other? What logic tied this company together?
C. What initial steps does Eisner take to reverse the company's decline? What contributes to the turn around in Disney's financials by 1987?
D. By 1994, Disney is more diversified entertainment company. What benefits does it gain from its increased diversification? What challenges does diversification pose? What logic ties this company together?
E. How do you evaluate the further diversification through 2000?
F. By 2001, Disney's performance is sagging. Why? What should be done?
Session 18
The Conundrum of GE
Case: GE's Two-Decade Transformation: Jack Welch's Leadership
Readings: # Alfred Chandler, "The Functions of the HQ Unit in the Multibusiness Firm"
# Henry Mintzberg, "The Role of the General Manager"
Study Questions:
A. Critics have claimed that GE is no different from "a glorified mutual fund" - i.e., a portfolio of businesses without any strategic relationship among them. To the extent that the portfolio may beat the market, this just means Jack Welch is a good (or lucky) portfolio manager. Do you agree?
B. What do you think of Welch's "3 circles" and "Number 1 or number 2" approaches to defining GE? Are these effective ways to guide corporate strategy?
C. Admirers of GE claim GE excels at developing managers. Do you agree? How does its mix of businesses relate to its management screening and development processes?
D. Why has GE been such a success? What is your forecast for GE after Welch?
Strategizing and Managing
In the last two sessions we look at processes: the process of creating strategy and the process of managing. The first focus is on the way that strategy is actually made in organizations. The second is on the role of the middle manager in forming and implementing strategy within the organization.
Session 19
The Strategy Process
Case: Xerox and Fuji Xerox
Reading: SS&P, Chapter 15
Rosabeth Moss Kanter, "Collaborative Advantage: The Art of Alliances" HBR 94405
Study Questions:
A. What role(s) did Fuji Xerox play in Xerox's global strategy? How might this change going forward? Why?
B. How did the relationship between Xerox and Fuji Xerox evolve over time and on what dimensions?
C. How autonomous was Fuji Xerox from corporate oversight and control? What determined this level of autonomy? How valuable or costly was this autonomy?
D. Consider the options for reorganization of the different functional areas identified by the CoDestiny III Task Force and listed in the Exhibit. In each area, which option should be selected, and why? What problems do you foresee in implementing these recommendations?
Session 20
The Manager in the Middle
Cases: Johnson & Johnson: Hospital Services Group
Reading: Uyterhoeven, "General Managers in the Middle"
Study Questions:
A. James Burke is quoted as saying "Our culture is really it." Just what is the J&J culture and what difference does it really make for the company?
B. What do you think of the way in which Burke and Clare have brought about the creation of the Hospital Services Group?
C. What problems does Pete Ventrella face?
D. What should Ventrella do about HSG in terms of profit or cost center?
E. What should Ventrella do about the differences with Ethikon over inventory placements?
COURSE PERFORMANCE MEASURES AND FEEDBACK
Performance evaluation will be based on class participation (40%), written assignments (30%), and a final examination (30%).
