Media Management Module 1 Strategy teigland jan24

Strategy

January 24 - Morning

Media Management – Module 1Robin Teigland

[email protected]

January 2011

2

Module Overview – 1/3 Jan 21 – What is Strategy?

Individual Assignment: Readings Group Assignment: Choose your Live Case Strategic

Issue Jan 21 – External Analysis: Industry Structure

and Competition Individual Assignment: Readings Group Assignment: Cola Wars Continue

Jan 24 –Internal Analysis: Analyzing Resources and Capabilities Individual Assignment: Readings Group Assignment: Wumart Stores

Jan 25 –An Entrepreneur’s View of Strategy in 3D Individual Assignment: Readings & Questions Guest: Steve Mahaley, PeaceTrain

3

Module Overview – 2/3 Jan 26 – Recent Developments in Strategy

Group Assignment: Article summary ppt for slideshare Jan 31 – Executing Strategy

Individual Assignment – Readings & Questions Guest: Christian Björkman, MindArk Guest: Fredrik Nilsson, IC You

Jan 31 – Exploring Business Models and role of IT Individual Assignment – Readings & Questions Guest: Paul DiGangi, Western Carolina University

Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry Individual Assignment: Readings Group Assignment: STEEP Guest: Stefan Lampinen, Speltjänst

4

Module Overview – 3/3 Feb 2 – Creating Value Networks

Individual Assignment: Readings & Questions Guest: Malin Ströman, Independent Consultant

Feb 7 - Live Case Day: Integrating Theory with Practice Group Assignment: Virtual Worlds and Gaming

Feb 9 – Module 1 “Exam”

What is strategy?

Strategy An integrated and coordinated set of

commitments and actions designed to gain a competitive advantage

Competitive advantage When two or more firms compete

within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit

5Hitt, Ireland & Hoskisson 2006

1. Long-term goal (objective)

2. Scope of the firm

3. Competitive advantage

Components of strategy

Collis & Rukstad 2008 6

8

Why are some firms more profitable than others?

RATE OF PROFIT ABOVE THE

COMPETITIVE LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which businesses

should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

Grant 2008

Operating margins in the heavy truck industry

Scania

Volvo

Avg. 11.8

Avg. 3.7

Opera

tin

g m

arg

in

1992 1994 1996

Teigland et al 1998 9

10

Shifting the focus of strategy analysis:From the external to the internal environment

The Firm-Strategy

Interface

TheEnvironment-Strategy

Interface

INDUSTRY ENVIRONMENT

• Competitors

• Customers

• Suppliers


• Competitors

• Customers

• Suppliers

STRATEGYSTRATEGYSTRATEGY

FIRM

• Goals & Values

• Resources & Capabilities

• Structure & Systems

FIRM

• Goals & Values



Grant 2008

Strategic analysis

Environment

Organization

Industry

Internal analysisRBV ModelInside->Out

External analysisI/O Model

Outside->In

11

Focus on two models in this course

Industrial Organization (I/O)

Focuses on the environment outside the firm

Opportunities and threatsOpportunities and threats By studying the external

environment, firms identify what they might choose to do.

Resource-based View (RBV) Focuses on the inside of the

firm Unique resources, capabilities, Unique resources, capabilities,

and competenciesand competencies((required forrequired for sustainable sustainable competitive advantagecompetitive advantage))

By studying the internal environment, firms identify what they can do.

Successful strategy formulation and Successful strategy formulation and implementation actions result only implementation actions result only when the firm properly uses both when the firm properly uses both

models.models.12

Objectives of Internal Analysis (RBV Model)

To understand the role of resources and capabilities in strategy formulation To describe the differences between tangible

and intangible resources

To discuss how capabilities are developed To appraise the profit potential of resources

and capabilities Putting resource and capability analysis to

work—a practical guide

13

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What is the basis for strategy?

Today external environment characterized by increasing pace of change New technologies Globalization Increasing information/knowledge flows Changing customer preferences

A firm’s resources and capabilities offer a more secure basis for strategy than market focus

Grant 2008

What is the basis of strategy?

Walmart vs K-Mart? US airlines vs Southwest Airlines?

Jay Barney on RBV http://www.youtube.com/watch?v=-

KN81_oYl1s

15

16

•Skills/know-how•Capacity for communication & collaboration•Motivation

Links between resources, capabilities and competitive advantage

STRATEGY


COMPETITIVEADVANTAGE

ORGANIZATIONALCAPABILITIES

RESOURCESTANGIBLE INTANGIBLE HUMAN

•Financial•Physical

•Technology•Reputation•Culture

Grant 2008

17

KEY SUCCESS FACTORS

What are the Key Success Factors (KSFs) in the industry?

Analysis of demand

• Who are our customers?

• What do they want?

Analysis of competition

• What drives competition?

• What are the main dimensions of competition?

•How intense is competition?

•How can we obtain a superior competitive

position?

What do customers want?

How does the firm survive competition?

Pre-requisites for success

Grant 2008

18

Steel industry – Key Success Factors What do customers want?

Customers include auto, engineering, and container industries

Customers acutely price sensitive and require product consistency and reliability of supply

Specific technical specs required for specialty steels How does a firm survive competition?

Compete primarily on price Intense due to high fixed costs, low cost imports, high exit

barriers, and entrance of minimills due to new technology Logistics due to high transport costs and scale economies

important What are the Key Success Factors?

Cost efficiency through scale-efficient plants, low cost location, rapid adjustment of capacity of output, efficient use of labor

Possibility for differentiation through quality, service, and technical factors

Grant 2008

19


Links between resources, capabilities and competitive advantage

STRATEGY


COMPETITIVEADVANTAGE

ORGANIZATIONALCAPABILITIES




Grant 2008

-Inputs into a firm’s production

process

-A firm’s assets

What is their potential for creating

competitive advantage?

What are resources?

20

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What are resources?RESOURCE CHARACTERISTICS INDICATORS

Financial *Borrowing capacity *Debt/ Equity ratio

*Internal funds generation *Credit rating

Tangible *Net cash flow

Resources Physical *Plant and equipment: *Market

value of size, location, technology, flexibility fixed assets* Land and buildings *Scale of

plants* Raw materials and fixed assets *Alternative

uses

Technology *Patents, copyrights, know-how *No. of patents owned

*R&D facilities *Royalty income

Intangible *Technical and scientific employees *R&D expenditure

Resources *R&D staff

Reputation *Brands *Brand equity

*Customer loyalty *Customer retention

*Company reputation with suppliers, *Supplier loyalty

Culture customers, government

Human *Training, experience, adaptability *Employee qualifications,

Resources * Commitment and loyalty of employees pay rates, turnover

Grant 2008

“A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner.”

In other words … The deployment of resources to achieve a goal The ability to do something… Used interchangeably with competence

What are capabilities?

22

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Architecture of resources and capabilities

ManagementSystems

OrganizationStructure

ORGANIZATIONAL CAPABILITIES



Grant 2008

24

Identifying organizational capabilities: A functional classification

FUNCTION CAPABILITY EXAMPLESCorporate Financial management ExxonMobil, GEManagement Strategic control IBM, Samsung

Coordinating business units BP, P&G Managing acquisitions Citigroup, Cisco

MIS Speed and responsiveness through Wal-Mart, Dell, rapid information transfer Capital One

R&D Research capability Merck, IBM Development of innovative new products Apple, 3M

Manufacturing Efficient volume manufacturing Briggs & Stratton Continuous Improvement Nucor, Harley-D Flexibility Zara, Four Seasons

Design Design capability Apple, Nokia

Marketing Brand management P&G, LVMH, Coke

Quality reputation Johnson & Johnson Responsiveness to market trends MTV, L’Oreal

Sales, Distribution Sales responsiveness PepsiCo, Pfizer& Service Efficiency and speed of distribution LL Bean, Dell

Customer Service Singapore Airlines Caterpillar

Grant 2008

25

Identifying capabilities through the value chain

Inb

ou

nd

Log

istic

s

Op

era

tion

s

Ou

tbou

nd

Log

istic

s

Mark

etin

g a

nd

Sale

s

Serv

ice

Firm Infrastructure

Human Resource Management

Technological Development

Procurement

Primary Activities

Porter

Defining organizational capabilities

Organizational Capabilities = firm’s capacity for undertaking a particular activity (Grant)

Distinctive Competence = activity that an organization does particularly well relative to competitors (Selznick)

Core Competence = capabilities that are fundamental to a firm’s strategy and performance (Hamel and Prahalad)

26

Disney

• Movies fortheatrical,television andhome videomarkets

• Cable channel

• Magic Kingdom

• Golfing

• Shopping Village

• ConferenceCenter

• Epcot Center

• Camping

• Hotels

• General real estatebrokerage & resort &property mgmt services

• Develops commercial &industrial properties

• Plans resort & primaryhome communities

• Character Merchandise

• Records

• Merchandise & publishinglicenses

• Educational computersoftware, films, cassettes& filmstrips

FilmedEntertainment

Brand Image Creativity(Characters) Imagineering

Real EstateDevelopment

ConsumerProducts

Visual Media

• Walt Disney Studios• Disney Channel

• Home video

Theme Parks & Resorts• Disneyland

• Walt Disney World

• Epcot Center

• Tokyo Disney

CommunityDevelopment

• Disney DevelopmentCo.

• Arvida CommunityDevelopment

Other Media

• Charactermerchandising &publications

• Records & musicpublishing

• Educational media

CoreCompetencies

CoreProducts

Business Units

EndProducts

Walt Disney Studios’ 1984 Strategic Architecture

Capabilities

• Distribution(Buena Vista)

Entertainment &Recreational Parks,

Shows & Resorts

28

Honda

EliteGold Wing

Shadow 1100Silky 125

TRX

HondaAccordPrelude

AccuraIntegra

All-Terrain VehiclesChain SawsDirt BikesGeneral PurposeEnginesLawn MowersLawn TractorsMarine EnginesMini TractorsOutboard MotorsPortableGeneratorsPower CarriersPower SprayerGarden TillersSnow BlowersSnow Mobiles

HondaMotorcycles

HondaMotor

CompanyHonda

Engineering

EngineKnow How

Power TrainKnow HowCompetencies

CoreProducts

BusinessUnits

Some EndProducts

Honda Motor Company’s 1996 Strategic Architecture

MotorcycleEngines

AutomotiveEngines

SmallEngine

29

30

Resources and CapabilitiesExercise

1 extra pointto the winning team

on their group report

32

Creating sustainable competitive advantage

Resources &Capabilities

Resources &Capabilities

Tangible, intangible, and humanresources and capabilities that an organization controls

Tangible, intangible, and humanresources and capabilities that an organization controls

Competitive Advantage

Competitive Advantage

Providing greater value for customersthan competitors can

Providing greater value for customersthan competitors can

SustainableCompetitiveAdvantage

SustainableCompetitiveAdvantage

A competitive advantage that othercompanies try unsuccessfullyto duplicate or beat

A competitive advantage that othercompanies try unsuccessfullyto duplicate or beat

Thomson Learning

Profit-earningPotential

Magnitudeof advantage

(ability to establish)

Sustainabilityof advantage

(ability to sustain)

Value

Rareness

Imperfect Imitability

Substitutability

The VRIS model for appraising profit potential

Barney 199133

What characteristics of resources and capabilities provide a competitive advantage?

34

Valuable •Appropriability: Value captured by company

•Superior in market (Demand): Better than competition

Rare •Physical uniqueness: Not possessed by many others

Inimitable •Path dependency: Developed in unusual way supporting development of certain resources and capabilities (Southwest Airlines).

•Causal ambiguity: Cannot detect how firm uses as foundation for competitive advantage. (Wal-Mart, Intel)

•Economic deterrence: No room in market for competition

•Social complexity: Interpersonal relationships, trust, and friendship among managers, suppliers, customers, partners

Substitutable

No strategic equivalent: Cannot be replaced with different resource or capabilityBarney 1991, Collis & Montgomery 2008

VRIS Model

Outcomes from combinations of the four criteria

Valua

ble?

Rare?

Inim

itabl

e?

Non

subs

titut

able

?

CompetitiveConsequences

PerformanceImplications

NoNo NoNo NoNo NoNo CompetitiveDisadvantageCompetitiveDisadvantage

Below AverageReturnsBelow AverageReturns

YesYes NoNo NoNo Yes/NoYes/No

CompetitiveParityCompetitiveParity

Average ReturnsAverage Returns

YesYes YesYes NoNo Yes/NoYes/No

Temporary Com-petitive AdvantageTemporary Com-petitive Advantage

Average to AboveAverage ReturnsAverage to AboveAverage Returns

YesYes YesYes YesYes YesYes Sustainable Com-petitive AdvantageSustainable Com-petitive Advantage

Above AverageReturnsAbove AverageReturns

35Hitt, Ireland, & Hoskisson 2006

Easy to imitate:Cash Commodities

Can be imitated (but may not be):Capacity pre-emptionEconomies of scale

Difficult to imitate:Brand loyaltyFavorable cost positionEmployee satisfactionReputation for fairness

Cannot be imitated:PatentsUnique locationUnique assets(e.g. Mineral rights)

Collis and Montgomery, Collis and Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).Corporate Strategy: Resources and the Scope of the Firm (1996).

Imitability

36

Three main types of capabilities that meet VRIS

37

InnovationArchitecture/

Networks of relationships Brand &

Reputation

B #1

openlearn.open.ac.uk/mod/resource/view.php?id=161737 openlearn.open.ac.uk/mod/resource/view.php?id=161737 Kay 1993Kay 1993

38

A framework for analyzing resources and capabilities

4. Develop strategy implications: (a) In relation to strengths,

--How can resources and capabilities be exploited more effectively and fully?

(b) In relation to weaknesses,--Identify opportunities for outsourcing

activities that can be better performed by other organizations

--How can weaknesses be corrected through acquiring and developing resources and capabilities?

2. Explore linkages between resources and capabilities

STRATEGY

CAPABILITIES

RESOURCES

POTENTIAL FOR SUSTAINABLE COMPETITIVE ADVANTAGE

1. Identify firm’s resources and capabilities

3. Appraise firm’s resources and capabilities:(a) Strategic importance(b) Relative strength

Grant 2008

39

Steps 1 & 2. Identifying resources and capabilities and their linkages

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

FINANCIAL MANAGEMENT & CONTROL

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS & SALES

PRIMARY ACTIVITIES

SUPPORTACTIVITIES

Key Success Factors

•How do customers choose?•What do we need to survive

the competition?

•What resources & capabilities

do we need to deliver theseKSFs?

Starting from the insideStarting from the insideStarting from the outsideStarting from the outside

Grant 2008

StrategicImportanc

e

VW’s Relative Strength

C1. Product development

9 4

C2. Purchasing 7 5

C3. Engineering 7 9

C4. Manufacturing 8 7

C5. Financial management

6 3

C6. R&D 6 4

C7. Marketing & sales

9 4

C8. Government relations

4 8

StrategicImportanc

e

VW’s Relative Strength

R1. Finance 6 4

R2. Technology 7 5

R3. Plant and equipment

8 8

R4. Location 7 4

R5. Distribution 8 5

VW RESOURCES CAPABILITIES

Step 3. Appraising resources and capabilities

Grant 2008

Note: Hypothetical example!

Rela

tive S

trength

Strategic Importance

Superfluous Strengths Key Strengths

Zone of Irrelevance Key Weaknesses

1

1

5 10

5

10

R1R2

R3

R4

R5C1

C2

C3

C4

C5C6 C7

C8

(Hypothetical)

Appraising VW’s resources and capabilities

Grant 2008 41

42

Step 4. Develop strategy implications4. Develop strategy implications (a) In relation to strengths,






STRATEGY

CAPABILITIES

RESOURCES



3. Appraise firm’s resources and capabilities(a) Strategic importance(b) Relative strength

Grant 2008

Wumart1. What are the sources of Wumart’s competitive advantage?

Identify the principal resources and capabilities that form the basis of Wumart’s competitive advantage.

Are Wumart’s resources “competitively superior” to other competitors at the time of the case?

2. How sustainable is Wumart’s competitive advantage domestically?

Is its position sustainable when challenged by international entrants? To what extent is Wumart’s competitive advantage sustainable?

3. Will Wumart be able to transfer its competitive advantage it has in China to other countries?

Will it be able to leverage the same resources and capabilities that it has in China in other markets?

Are Wumart’s resources and capabilities specific to China or emerging markets?

4. Looking into the future, what should Wumart do to sustain its performance?

What challenges does it face? How can it defend against competitive (and other) threats?

48

Wumart Case Assignment

Questions 1& 2 You are a consulting company asked by Wal-

Mart’s top management to conduct a competitor analysis of Wumart. Prepare a presentation for Wal-Mart’s top management.

Questions 3 & 4 You are Wumart internal consultants asked by top

management to look into an international expansion strategy. Prepare a presentation for Wumart’s top management.

49http://www.flickr.com/search/?q=wumart

50

Competitor Analysis

PREDICTIONS

• What strategy changes will the competitor

initiate?

• How will the competitor respond to others’ strategic

initiatives?

OBJECTIVESWhat are the competitor’s current goals?Is performance meeting these goals?How are goals likely to change?

STRATEGYHow is the firm competing?

ASSUMPTIONSWhat assumptions does the competitorhold about industry and itself?

RESOURCES & CAPABILITIESWhat are the competitor’s keystrengths and weaknesses?

Grant 2008

51








STRATEGY

CAPABILITIES

RESOURCES



3. Appraise firm’s resources and capabilities:(a) Strategic importance(b) Relative strength

Grant 2008

Reminders Never take for granted that resources and

capabilities will continue to provide a source of competitive advantage.

All resources and capabilities have the potential to become core rigidities—former ones that now generate inertia and stifle innovation.

Determining what the firm can do through continuous and effective analyses of its internal environment will increase the likelihood of long-term competitive success.

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Making choices

Strategy is about choosing what NOT to do: Which customers not to serve What products or services not to offer Which activities not to perform

Strategy is about NOT being all things to all people

Porter

54

Exploiting differences, not doing the same!

Competitive advantage:Ability to outperform

others due to exploiting unique features of firm’s

resources and capabilities

Grant 2008

55

End products

Resources & capabilities

Core products

Businessunits

Build strategy on strong resources and capabilities!

Cisco’s globalization plan

Interesting podcast on how Cisco is thinking about strategy and

globalization

56

http://deimos3.apple.com/WebObjects/Core.woa/Browse/new.duke.edu.1385587001.01385587006

57

Strategy strives to achieve a “fit” between the FIRM & its ENVIRONMENT

The Firm-Strategy

Interface

TheEnvironment-Strategy

Interface


• Competitors

• Customers

• Suppliers


• Competitors

• Customers

• Suppliers

STRATEGYSTRATEGYSTRATEGY

FIRM

• Goals & Values



FIRM

• Goals & Values



Grant 2008

Focus on two models in this course

Industrial Organization (I/O)

Focuses on the environment outside the firm

Opportunities and threatsOpportunities and threats By studying the external

environment, firms identify what they might choose to do.

Resource-Based View (RBV) Focuses on the inside of the

firm Unique resources, capabilities, Unique resources, capabilities,

and competenciesand competencies((required forrequired for sustainable sustainable competitive advantagecompetitive advantage))

By studying the internal environment, firms identify what they can do.

Successful strategy formulation and Successful strategy formulation and implementation actions result only when implementation actions result only when

the firm properly uses both models.the firm properly uses both models.

58

59

Porter’s five forces of competition

ENTRANTS

SUPPLIERS BUYERS

SUBSTITUTES

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Threat of new entrants

Threat of substitutes

Bargaining

power of suppliers

Bargaining

power of buyers

http://www.youtube.com/watch?v=mYF2_FBCvXw&feature=channel

60








STRATEGY

CAPABILITIES

RESOURCES



3. Appraise firm’s resources and capabilities:(a) strategic importance(b) relative strength

Grant 2008

Which matters more?.. Industry? Firm? Same?

Both matter: Recall the I/O Model and RBV Model.

There is more profit variability across firms within an industry (31%) than across industries (18.6%).

We should understand both the firm’s external environment (industry analysis) and the firm’s resources and capabilities (internal analysis) relative to its competitors’ resources and capabilities.

61

I/O Model of Above-Average Returns

1.1. Strategy dictated by Strategy dictated by the external the external environment of the environment of the firm firm (What opportunities (What opportunities exist in these exist in these environments?)environments?)

2.2. Firm develops Firm develops internal skills internal skills required by external required by external environment environment (What (What can the firm do about the can the firm do about the opportunities?)opportunities?)

1.1. Strategy dictated by Strategy dictated by the firm’s unique the firm’s unique resources and resources and capabilitiescapabilities

2.2. Find an environment Find an environment in which to exploit in which to exploit these these (Where are the best (Where are the best opportunities?)opportunities?)

RBV Model of Above-Average Returns

What is the difference between The I/O and RBV perspectives of strategy?

Outside … In Inside … Out

64

67

Module Overview – 1/3 Jan 21 – What is Strategy?

Individual Assignment: Readings Group Assignment: Choose your Live Case Strategic

Issue Jan 21 – External Analysis: Industry Structure

and Competition Individual Assignment: Readings Group Assignment: Cola Wars Continue

Jan 24 –Internal Analysis: Analyzing Resources and Capabilities Individual Assignment: Readings Group Assignment: Wumart Stores

Jan 25 –An Entrepreneur’s View of Strategy in 3D Individual Assignment: Readings & Questions Guest: Steve Mahaley, PeaceTrain

68

Module Overview – 2/3 Jan 26 – Recent Developments in Strategy

Group Assignment: Article summary ppt for slideshare Jan 31 – Executing Strategy

Individual Assignment – Readings & Questions Guest: Christian Björkman, MindArk Guest: Fredrik Nilsson, IC You

Jan 31 – Exploring Business Models and role of IT Individual Assignment – Readings & Questions Guest: Paul DiGangi, Western Carolina University

Feb 2 - External Drivers of Change: Exploring the Future of the Gaming Industry Individual Assignment: Readings Group Assignment: STEEP Guest: Stefan Lampinen, Speltjänst

69

Module Overview – 3/3 Feb 2 – Creating Value Networks

Individual Assignment: Readings & Questions Guest: Malin Ströman, Independent Consultant

Feb 7 - Live Case Day: Integrating Theory with Practice Group Assignment: Virtual Worlds and Gaming

Feb 9 – Module 1 “Exam”