Media Management 2011-Strategy Module - Jan 21_2

Editor's Notes

• #6 W hat words would you highlight in the definition? Why?
• #7 Grant 2008: the nature of strategy in a turbulent direction – it’s about direction, not detailed planning. Madonna (like Virgin or Google) displays clear direction combined with the flexibility to adapt to and exploit unexpected change Collis & Rukstad: It is always easy to claim that maximizing shareholder value is the company’s objective. In some sense all strategies are designed to do this. However, the question to ask when creating an actionable strategic statement is, Which objective is most likely to maximize shareholder value over the next several years?What our competitive game plan will be BALANCED SCORECARD How we will monitor and implement that plan of a Strategy Statement OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means MISSION Why we exist VALUES What we believe in and how we will behave VISION What we want to be STRATEGY What our competitive game plan will be BALANCED SCORECARD How we will monitor and implement that plan The BASIC ELEMENTS of a Strategy Statement OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means Single goal – profitability vs market share – what matters more? Scope - 3 dimensions – customer or offering, geographic location, vertical integration, clearly defined areas Advantage –1) value proposition – why should people buy your product over others? 2) combination of activities to deliver value proposition
• #8 In which markets does Madonna compete? CORPORATE STRATEGY Recorded music Concerts, Music videos and other televised appearances Movies, Books Music and video production Publishing and promotion MULTIPLE MARKETS, RELATED DIVERSIFICATION - BUT DRIVE TOWARDS CORE MARKETS THOUGH?! For diversification to work there must be synergies And there must also be a highly consistent brand image across BUSINESS (OR COMPETETIVE) STRATEGY Early identification of key trends in .. Maximum use of controversy to maintain media and public interest. Periodic renewal of her “product life cycle”.. Outsourcing to access resources and capabilities of others.. Maintenance of close control over key elements of her intellectual property and creativity Astute use of interpersonal relationships as the basis for business alliance
• #10 Goals & values – long-term goals Resources & Capabilities – objective appraisals Implementation – structure and systes Industry envt – competitive envt SWOT – strengths can be weaknesses and vv, as well as threats can be opportunities Better to focus on internal and external factors – What is important is strategic fit
• #11 Making choices – Porter Corporate strategy – industries and markets that compete in, decisions include investment in diversification, vertical integration, acquisitions, new ventures, allocation of resources between different businesses, divestments Business strategy – how firm competes within the particular industry or market, competitive advantage over rivals, Focus on the difference btwn average returns and above ave returns. What would you want as an investor in the stock market? How would you know if you’ve achieved your goals? Let’s say the value of your stock increased 6% in the last year? Are you pleased? Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment Average Returns Returns equal to those an investor expects to earn from other investments with a similar amount of risk Above-average Returns Returns in excess of what an investor expects to earn from other investments with a similar amount of risk Strategic Competitiveness When a firm successfully formulates and implements a value-creating strategy Sustainable Competitive Advantage When competitors are unable to duplicate a company’s value-creating strategy Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns
• #13 Industrial Organization Economics
• #15 Take a few minutes and place your own chosen industry. What are the implications.. Theory of monopoly and theory of perfect competition Us market for chewing tobacco close to being a monopoly Chicago grain markets close to being perfectly competitive Most manuf and service are oligopolies dominated by small number of firms Four structural variables that influence competition and profitability in an industry
• #16 For the high-profit and low-profit industry, it is possible to analyze every one of all five forces of competition. However, to speed up the analysis it is best to concentrate on those forces of competition that are critically important in the industry under consideration. Pharmaceuticals . Patent legislation means that the industry is fragmented by drug type and each firm has a statutory monopoly over its patented drug. For each condition there are typically several alternative drugs. However, price competition between them is limited since consumers have limited choice – it is their doctors who choose for them. Buyer power is primarily exercised by insurance companies (or, in countries where there is socialized medicine, by public authorities). For drugs where patents have expired, the competitive situation is very different due to the presence of multiple producers of “generic” drugs. Profit margins are much lower on these drugs.
• #17 Three horizontal forces and two vertical forces Picture from Grant 2008 All competing to get a share of the profits
• #19 Depends on purposes and context of analysis Which are the groups of firms that compete to supply a particular service or product? Market – defined by substitutability – Longer term the decisions, the more broadly the market should be considered since substitutability is higher in long term than in short term Precise boundaries are not greatly important
• #21 Threat of entry rather than actual entry may be sufficient to ensure that established firms constrain prices People express – american airlines Effectiveness of barriers to entry influence rate of profit - > industries protected by high entry barriers tend to earn above average rates of profit. Capital requirements and advertising appear to be particularly effective impediments to entry. Effectiveness depends on resources and capabilities that potential entrants possess But some entrants possess resources that allow them to surmount entry barriers – virgin with its brand name, google,
• #22 Concentration in the market – more concentrated –>less competition Diversity of competitors – more alike companies are in structures, strategies, and top mgt mindsets ->less competition Industries where strategic groups may be less competition pharmaceuticals, perfumes, restaurants, management consulting services High fixed costs to variable costs ratio – then more competition, airlines,
• #23 38 L onger duration than product life cycle D emand growth – I ntroduction – sales small, early adapters, customers few G rowth stage – accelerating market penetration – product technology becomes more standardized, and prices fall, mass market M aturity – slowing growth - new demand gives way to replacement demand, market saturation D ecline – new industries challenge industry w ith technologically superior products Intro stage – not so much rivalry but profits not so high since heavy investments Growth phase that there is higher profitability Maturity – price competition but other forces degree of rivalry Creation and diffusion of knowledge – competition between alternative technologies and design Outcome of competition is dominant design KSFs differ dependingon phase in ILC
• #25 42
• #26 Few buyers * Large buyers * Many companies sell the same product/service * Buyers are capable of backward vertical integration * It is possible to substitute the product/service * Buyer´s knowledge about the industry is great Can prices for bottlers vs auditing costs for company Buyer’s information – ability to compare prices across sellers or qualities of product
• #27 Few suppliers * Large suppliers * No substitutes for the supplier ´ s products/services * The supplier is capable of forward vertical integration * The supplier´s products are differentiated, which make it expensive for the company to change supplier More concentrated No substitutes Not important customer Important input Differentiated product and/or high switching costs Threat of forward integration
• #28 Pharmaceuticals - 17 year patents! Potatoes- substitutes rice, noodles.. Tobacco – addiction How sensitive are they to price increases – gasoline… Price elasticity! Higher prices make them change! Or technology, social changes, new needs! The following factors can make the threats of substitutes larger: * Existing products/services become obsolete * Non differentiated products/services What can a company do to avoid substitution? T ravel agencies, newspapers – internet has provided substitutes for these M ore complex the product, the more difficult to discern performance differences – think strategic management consulting
• #29 Process steps: Identify industry or segment boundaries. Identify players in each Force using case facts. Assess level of threat, power, intensity of each Force using case facts and course concepts. Make final assessment of whether it is an attractive industry in which to compete using results of 5 Forces analysis to support your view.
• #30 The Industry Environment lies at the core of the Macro Environment. The Macro Environment impacts the firm through its effect on Industry Environment. 1. What environmental factors are affecting the organization? 2. Which of these are the most important at the present time? 3. Which of these are the most important in the next few years? PESTEL-analysis is a tool – not a key. PESTEL stands for P olitical, E conomic, S ocial, T echnical, E nvironment and L egislative. It is a strategic planning technique that provides a useful framework for analysing the environmental pressures on a team or an organisation A PESTEL Analysis can be particularly useful for groups who have become too inward-looking. They may be in danger of forgetting the power and effect of external pressures for change because they are focused on internal pressures. Help people make their assumptions explicit Important to look forward and at future impact of envtal factors which may be different from past impact. Usually will be combined effect of some of these separate factors that will be important rather than any single factor Plays role in focusing organizations on choices open to them and the constraints and risks involved in these choices. Political – threat of terrorism, Economic – unemployment levels Social – demographic changes Tech – development of new/subst products Environmental – antipollution Legal - antitrust
• #31 PESTEL-analysis is a tool – not a key.
• #32 Strategic decisions today commit resources in the future What is affecting the industry’s structure? Number of players, products offered – differentiated vs commoditized?, capacity – players have plans to expand? Where is the industry in the ILC?
• #33 Position firm against existing forces Building defenses against the competitive forces Finding positions where forces are weakest Influence the forces through strategic moves Anticipate shifts in competitive forces and take advantage of new opportunities before competitors
• #34 The analysis will often make the companies consider their relations: * change the relationship to suppliers    * change the relationship to buyers * competitor´s activities
• #35 Process steps: Identify industry or segment boundaries. Identify players in each Force using case facts. Assess level of threat, power, intensity of each Force using case facts and course concepts. Make final assessment of whether it is an attractive industry in which to compete using results of 5 Forces analysis to support your view.
• #36 Is the soft drink industry profitable? Use Porter’s five-forces analysis to analyze the concentrate business. Put the soft drink producers in the center of the model as the industry incumbent/rivals. What are the five forces and key underlying structural determinants of each of the five forces? What are the implications for the relative power of each force? Based on this analysis, how attractive is this industry? In other words, how high is the profit potential of the industry competitors? What are the elements of your analysis that lead you to this conclusion? Why is profitability so different between the concentrate business and the bottling business? Repeat the above five-force analysis for the bottlers. How do the economics of the concentrate business compare to the bottling business? Which industry is more attractive? What challenges face these companies today? How has competition between Coke and Pepsi affected industry profits? What factors are affecting industry profitability? How can the five-forces analysis help you to answer these questions? http://www.youtube.com/watch?v=4_EfniTmakQ
• #39 3. Indra K. Nooyi, ordförande och vd för PepsiCo, USA. #3 on list of most powerful women http://www.thepittsburghchannel.com/news/14326479/detail.html Cola Wars Get Physical As Pepsi Worker Attacks Coke Employee The Pepsi MachineSales are soaring, margins are up, and investors are cheering. How Pepsi outmaneuvered Coke by looking beyond the cola wars January 30, 2006: 4:34 PM EST(FORTUNE Magazine) – One evening this past November, Pepsi CEO Steve Reinemund laid out a smorgasbord of snacks for his board of directors to munch on. This was not gentlemanly hospitality; it was pure business. These snacks represented Pepsi's future: a line of products aimed at cashing in on consumers' continuing obsession with healthy food. If all goes well, the line will bring in billions for the company. According to one board member, the treats were "delightful." But more than just the future of Pepsi, this spread in many ways represents everything the company has done right for nearly a decade: finding new ways into people's stomachs--and wallets--and pulling off one of the great turnarounds in American business.In October 1996, the cover of this magazine ridiculed Pepsi. The image: then-CEO Roger Enrico trapped inside a Coke bottle. The headline on the story: HOW COKE IS KICKING PEPSI'S CAN. Our theme was that PepsiCo had lost the cola wars, and the proof was everywhere. The company's profits trailed those of its rival in Atlanta by 47%. Its value in the stock market was less than half of Coca-Cola's. Coke's CEO at the time, Roberto Goizueta, was so sure of his company's dominance that he practically dismissed Pepsi, telling FORTUNE, "As they've become less relevant, I don't need to look at them very much anymore."How wrong we all were. In December, for the first time in this 108-year rivalry, Pepsi beat Coke, surpassing Warren Buffett's darling in market capitalization. Since our cover ran, Pepsi's operating margins have climbed from 16% to 23%, its net margins from 6% to 14%. Profits, effectively flat through the late 1990s, have climbed more than 100% since 2000, on track to reach $4.5 billion on $32 billion in sales this year. "Pepsi's been on fire," notes Robert van Brugge, beverage analyst with Sanford Bernstein. Over the past five years its stock has risen more than a third to a recent $57 a share, while Coke's has sunk 30%.So what did FORTUNE miss? Everything--and nothing. The great irony of Pepsi's rise is this: It has never sold more soda than Coke, even today. What we failed to appreciate in 1996 was the power of its plan for resurgence, which was already beginning to take root. PepsiCo turned its cola Waterloo into an opportunity to retrench, regroup, and ultimately outflank its old foe.Pepsi today is one of best-run companies in the country. In the food and beverage business, there are no game-changing innovations--no iPods or Xboxes. It is a detail-driven industry, a long hard slog where gains are measured in fractions of a percent and a single percentage point in market share or margins is a big deal. This is a game Pepsi has mastered--thanks in part to the rigor and competitiveness of CEO Reinemund. "Steve's an ex-Marine, and everything you would associate with that pertains," says Ken Harris, a consultant with Cannondale Associates who has worked with Reinemund at PepsiCo. "You'll leave a meeting knowing exactly what's expected of you and the time frame in which it should be done." Reinemund has put together one of the strongest management teams around, including president and CFO Indra Nooyi, and is a hands-on manager who's been known to personally make sales calls to help Pepsi win a contract. One Christmas Eve a few years back, while on vacation with his family, he found himself at a convenience store just as a Frito-Lay delivery arrived to replenish the shelves; he put aside his purchases and helped pack chips. A devout Presbyterian, he told Theology Today in 2003 that his primary goal is "to glorify God and to serve him in the way I am called to do. I think in the business world the manifestation of that is in actions, not in preaching." (Reinemund declined to be interviewed for this article.)Reinemund certainly owes some of his company's success to stumbles by Coke, which has been plagued by CEO turnover (four in nine years) and management snafus (epitomized by a bungled attempt to buy Quaker Oats in late 2000 that allowed Pepsi to swoop in and make the deal). But Pepsi's resurgence is no accident. A decade ago Coke offered investors a compelling story: a recession-resistant product inexpensive enough that consumers would buy it in good times and bad, but valued enough that they would willingly pay an extra nickel or so above what no-name brands charged. What Coke investors didn't envision was that an emerging preference for other soft beverages--water, sports drinks--would fracture demand. Nor did they (or FORTUNE) see that the business strengths that once applied to cola would take hold across a broadened soft-drink and snack-food market--a market that Pepsi, and not Coke, dominated.Losing the cola wars, it turns out, was the best thing that ever happened to Pepsi. It prompted Pepsi's leaders to look outside the confines of their battle with Coke. "They were the first to recognize that the consumer was moving to noncarbonated products, and they innovated aggressively," observes Gary Hemphill of Beverage Marketing. PepsiCo embraced bottled water and sports drinks much earlier than its rival. Pepsi's Aquafina is the No. 1 water brand, with Coke's Dasani trailing; in sports drinks, Pepsi's Gatorade owns 80% of the market while Coke's Powerade has 15%. Throughout the past five years under Reinemund, the company has deftly moved with every shift in consumer tastes. "He's thinking about what the products should look like in the future," says Victor Dzau, a director of PepsiCo. For example, as COO in 2000, Reinemund had a hand in Pepsi's acquisition of Sobe, buying the company a critical foothold in an emerging category of New Age drinks--the business now pulls in an estimated $200 million a year. Through a partnership with Starbucks, PepsiCo now dominates the bottled-coffee market; this year it will sell over $300 million of Frappuccinos.But Pepsi's strongest business lies outside drinks altogether. Over the past ten years, the Frito-Lay division--which seems like it sells practically every chip in every store in the country--has become a powerhouse, controlling 60% of the U.S. snack-food market. So strong is Pepsi in this arena, in fact, that many investors no longer judge it by how it stacks up against Coke. "Most people think of Pepsi and Coke fighting it out," observes Eric Schoenstein, an analyst at Jensen Investment Management, which owns shares of both. "But we don't see it that way. Pepsi isn't really a beverage company anymore: It's a food company that also sells beverages." John Carey, manager of the Pioneer fund, which has 1.6 million PepsiCo shares, says he bought the stock because of Frito-Lay: "There's no Coca-Cola in that business."That's a step up in the corporate pecking order for Pepsi's food di- vision. For most of the 40 years it has been a part of the company, Frito-Lay has taken a back seat to the high-profile cola business. "It was the unsung hero," says Mark Dollins, a company spokesman. Now the food brands dominate Pepsi's financial results: Selling Tostitos, Ruffles, and the like--as well as innovative product extensions like Wavy Lays, Limon Cheetos, and 3-D Doritos--now brings in more revenue in North America than beverages do. The news is the same when it comes to operating profit: Frito-Lay North America and Quaker Oats combined deliver 47% of PepsiCo's total, compared with 31% for North American beverages. The rest of the pie--some $1.3 billion in operating profit this year--comes from overseas, where PepsiCo's reach is huge and growing. The company operates across the globe, from Europe (where PepsiCo recently acquired Sara Lee's nuts business in Belgium, the Netherlands, and France, and a Polish snack-foods company) to China (where it owns several potato fields to help keep the chips flowing locally).The company's big push now is getting all its different fiefdoms to work together, especially in sales and marketing campaigns. As this year's Super Bowl looms, supermarket shoppers will see in-store displays that tout watching the game while munching Lays chips and slurping on a Diet Pepsi. This is part of an initiative dubbed the "Power of One," designed to push the company's businesses to approach the marketplace more cohesively. "Our Power of One really speaks to our ability to use all of PepsiCo's products, services, and talents," Reinemund explained in last year's annual report. "We view this as a key strategic growth driver."Right now PepsiCo needs that growth as it faces a toughening economic climate. The high price of energy is putting pressure on the company's margins, and nearly every aspect of its business--its suppliers, its fleet of delivery trucks, its manufactur- ing plants--is feeling the cost squeeze. The result: PepsiCo announced that this quarter it will be taking a restructuring charge of $65 million to $85 million. And barring a miraculous drop in energy prices, the coming year will bring continuing cost pressures.Nonetheless, over the past five years Pepsi has demonstrated an ability to ride out business cycles and sustain its results: Net profits have climbed 50%, sales are up 33%. Since 2002, sales and earnings per share have grown every quarter year-on-year. The company now boasts 16 brands that bring in more than $1 billion each a year in revenue. Over the next five years, operating profits are expected to rise by 7.5% per year, compared with 5% for the rest of the industry and 6.5% for Coke, according to Sanford Bernstein.The irony of Pepsi's success is that despite how far it has come out of the cola trenches, inside the company the primary competitive driver is still Coke. Ask any employee who the enemy is and the answer comes quick: "Every one of them will say Coke," says consultant Ken Harris, who's worked closely with Pepsi. Coke may no longer be the real competition, but for the soldiers of Pepsi, it's still a very useful enemy.
• #40 Process steps: Identify industry or segment boundaries. Identify players in each Force using case facts. Assess level of threat, power, intensity of each Force using case facts and course concepts. Make final assessment of whether it is an attractive industry in which to compete using results of 5 Forces analysis to support your view.
• #42 Position firm against existing forces Building defenses against the competitive forces Finding positions where forces are weakest Influence the forces through strategic moves Anticipate shifts in competitive forces and take advantage of new opportunities before competitors
• #43 17 Need to understand what motivates customers and how competition works. These aspects prereqs to effective business strategy
• #44 What are KSFs? Resources and capabilities a company must have to be able to compete successfully within a given industry Are general for the industry and represent means by which competitors can differentiate from each other
• #45 19 7
• #49 Strategies: M&As, capacity exchanges & product divisions, alliances & market divisions, certification KSF: What do customers want? How does the firm fullfill that want?