Foundations of Business Strategy  

Murali Chandrashekaran  • Fred H. Siller Professor  • Senior Associate Dean, Strategic Partnerships and Global Initiatives  • Chair of the Americas, Partnership in International Management Network  

Sauder School of Business, University of British Columbia  

1  

Themes  

1. Strategy  2. Execution  

2  

Module 1: 9 September 2016  

OBJECTIVES  • To introduce myself  • To meet you  • Foundations  • Aravind case - initial discussion & set up for Sept 18  

3  

Oct 23, 2016  • The IPOD is 15!  • Happy birthday IPOD!  • Steve Jobs’ prediction on Oct 23, 2001:   “With iPod, listening to  music will never be the same again.”  

4  

Why do firms exist?  

Are there firms without which you cannot imagine the world?

 

5  

The Alaska Gold Mine - I  

6  

Conceptual Overview  

GOAL  The Environment -

 “Threats & Opportunities”  

Management’s values & attitude toward risk

 

Capabilities - “Strengths & Weaknesses”  

STRATEGY  

7  

8  

Strategic management process

Objec(ves/goals  

External  analysis  Internal  analysis  

Strategic  choice  Implementa(on  

Compe((ve  advantage  

Mission/Vision  

9  

Mission  

Vision  

Sauder’s mission?

10  

To  become  Canada’s  most  influen(al,  globally  recognized  business  school  through  the  impact  of  our  research  and  our  graduates.  

Our  mission  is  to  create  ideas  that  deepen  and  advance  our  understanding  of  management  and  with  those  ideas  to  develop  innova(ve,  principled,  and  insighLul  leaders  who  change  the  world.  

To  foster  the  crea(on  of  knowledge  and  purpose-­‐driven  leaders  empowered  with  knowledge  and  experience  to  tackle  the  profound  problems  of  our  (me  

11  

Mission  

Vision  

Examples of missions  

We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper. (2011)

 

11  

Examples of missions  

“To bring inspiration and innovation to every athlete in the world”

 “ _______ is built upon finding ways to do online search

better and faster in an increasing number of new places and in ever more efficient ways”

 

“The ______ Group is the only manufacturer of automobiles and motorcycles worldwide that concentrates entirely on premium standards and

  outstanding quality for all its brands and across all its segments”  

12  

Examples of missions  

To eliminate needless blindness  

How would Aravind know that it is making progress on delivering on its mission?

 13  

Organizational objectives  

•

Maximize  shareholder  value    •

Profits,  cash  flow    •

Market  share    •

Maximize  stakeholder  surplus    •

Triple  boQom  line    •

Customer  Sa(sfac(on    

•

Metrics?    

14  

The Alaska Gold Mine -- II  

15  

The Alaska Gold Mine - II  

• Working on your own: What is your decision?

Go it alone__ Go with Pat__ Send Pat__

 

• With your group  

Is Pat going to be involved?  Do you tell Pat about the gold?   16

 What deal do you strike with him?  

Conceptual overview  

The Environment - “Threats & Opportunities”  

Management’s values & attitude toward risk

 

Organization’s resources and capabilities -

 “Strengths & Weaknesses”  

• Iterative  

GOAL   Implementation Levers:

 ¬Organization structure ¬Systems and processes ¬People and rewards  

STRATEGY Strategic Leadership:  

¬Lever and resource allocation decisions

 ¬Develop support among   stakeholders

 ¬ Shape culture  

Performance  

17  

•

Perfect information will never be there

So, what is strategy?  • Porter - Strategy is the act of aligning a company and its   environment. That environment is subject to change, as are

the firm’s own capabilities. Thus, the task of strategy is to maintain a dynamic, not static, balance.  

• Barney - Strategy is a pattern of resource allocation that enables firms to maintain and improve their performance  • Ohmae - Strategy is really no more than a plan of action against the forces at work in the business environment  • Murali - Strategy is about leveraging assets to actualize   organizational purpose. It is about creating, capturing, and

18 sustaining value under dynamic uncertainty.

 

Strategy levels  • Functional level   • E.g., marketing & sales: Communication, channels, product

management, sales management  • Business unit level

  • HR, Accounting, Marketing & sales, Operations & logistics,  

• Corporate level   • Business units A, B, C….  • Network level

  • Firm A, B, C..  

19  

Corporate vs. Business Strategy  • Corporate strategy defines the scope of the firm in terms of the industries and markets it competes. Corporate strategy decisions include investments in diversification, vertical integration and acquisitions, new ventures, the allocation of resources between different businesses of the firm, and divestments  

• Business strategy is concerned with how the firm competes within a particular industry or market. If the firm is to prosper, it needs to establish competitive advantage over its rivals. Hence this area is also referred to as competitive strategy  

20  

Key aspects of strategy  • Anchored by a clear and compelling purpose  • Add value - who do we serve?  • Clear choices - what do you do, what don’t you do?  • Tailored system of choices - Fit and focus  • Meaningful metrics that guide behavior to what matters  • Passion  • Communicated from the perspective of the consumer  • Understood by the junior-most person in the org   21

 

Masco 1986  • Richard Manoogian, CEO of Masco   Corporation on the verge of a momentous

decision  • He has a big pile of money and must decide

whether or not to invest it in a far-reaching new business venture   • If he does not: Pass up on a new growth

trajectory and hundreds of millions of $$  • If he does and turns out wrong: $1-2billion down the drain   22

 

From Montgomery, The Strategist, 2012  

What to do?  

23  

So what shapes performance?  

Absolute and relative performance  

28  

External and internal factors matter  

29  

Industry shapes performance (ROE 1990-2010)

27  

-­‐20   -­‐10   0   10   20   30   40  

Tobacco  Fruit  Veg  Products  Toiletry  Cosme(cs  Pharmaceu(cals  Clothing  stores  

Oil  refining  Footwear  

Aerospace  defense  Retailing  SoZware  

Securi(es  Brokers  Commercial  banks  

Household  Furniture  Automobiles  SoZ  Drinks  Insurance  

Computers  &  Peripherals  Paper  &  Forest  Products  

Comm.  Equip.  Airlines  

Why external analysis?  When an industry with a reputation for  difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact  

Warren Buffet  

31  

Key questions  

What macro-environmental factors will impact the design and implementation of strategy, and how stable are these?  

What industry forces impact performance?  

32  

Rich tool-kit  • Key success factors analysis   • What are the KSFs in the Ice Cream Industry?  

• PESTLE  • Porter’s Five Forces  

33  

Integrated case 1 - Aravind  

35