Nike Case Due Next Tuesday

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• Nike Case Due Next Tuesday
• Guest Speaker Thursday
• Randy Conrads of Classmates and Red Week

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• Cancelling Group Presentation Requirement (was to
  be worth 15)
• Exam 1 20 23.5
• Exam 2 20 23.5
• Paper 20 23.5
• Strategic Issue 10 11.76
• Cases 10 11.76
• Group Case 5 5.88

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Entrepreneurship Intrapreneurship
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Entrepreneurship

• The process of uncovering and developing an
  opportunity to create value through innovation
  and seizing that opportunity without regard to
  either resources (human and capital) or the
  location of the entrepreneurin a new or existing
  company (Churchill, 1992 586).

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Entrepreneurship Characteristics

• Commercial leanings
• Lack of structure/self-control
• Visionary tendencies
• Risk-taking/appetite for uncertainty
• Persistence
• Doer/high initiative
• Charisma and extroversion

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Entrepreneurship Characteristics

• High-energy level
• Strong self-image
• Team building skills/uses contacts
  and connections
• Views failure as learning
• Commitment and fun

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Entrepreneurs vs Managers
Entrepreneurs Managers
Rewards Doing what they like. Independent Corporate rewards. Promotion, staff, office, money
Activity Direct involvement Delegation
Risk Moderate risk taker Avoids risk
Status Not concerned about status symbols Represents power and position
Relationships Deal-making and reciprocity Relies upon the hierarchy
Time orientation Time orientation - 5 - 10 years. Short term
Decisions Follows dreams with decisions Follows directives
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Intrapreneurship Characteristics

• Understands the environment
• Visionary and flexible
• Creates management options
• Encourages teamwork
• Encourages open discussion
• Builds a coalition of supporters
• Persists

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Intrapreneurship Environment

• New ideas encouraged
• Trial and error encouraged. Failure ok!
• Resources available and accessible
• Long time horizon
• Appropriate reward system
• Sponsors and champions available
• Support of top management

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• It is the customer who, in the end,
• determines how many people are employed and what
  sort of wages companies can afford.
  Lord Robens

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Strategy in High Technology Industries
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High Technology Industries

• Rapidly changing scientific knowledge underlying
  attribute for competition
• RD/Sales
• Battle over technical standard, format, and
  dominant design
• Set by decree, cooperation, public domain, but
  mostly through consumer choices

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Benefits for Standards

• Compatibility
• Reduce consumer uncertainty
• Reduce production costs
• Increase in complementary products Network
  effects which greatly enhances sustainability
• Lock outs and switching costs

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Wining Format Wars

• Ensure complementary products
• Killer applications
• Razor and blade strategy
• Cell phones, printers, satellite TV/radio, video
  games
• Cooperative competition
• Licensing

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Technological Change

• If the automobile had developed at the same rate
  as the microchip, a Roll Royce would
• Cost 2.75
• Go 3 Million miles on a gallon of gas

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TV Industry Paradigm Shifts
Black White TV
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Color TV
Black White TV
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Color TV
Black White TV
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Big Screen TV
Color TV
Black White TV
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Big Screen TV
Color TV
Black White TV
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HDTV
Big Screen TV
Color TV
Black White TV
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HDTV
Incremental evolution included remote
controls,cable ready tuners, stereo sound
systems, screen-in-a-screen, etc
Big Screen TV
Color TV
Black White TV
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Competitive Dynamics

• Competitive action within an industry.
• Strategic and tactical action does not occur
  within a vacuum
• What industries have high competitive dynamics?
• What sort of actions/tactics are taken?

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Drivers of Competitive Dynamics

• numerous/equally balanced competitors
• slow growth
• high fixed/storage costs
• lack of differentiation/switching costs
• high exit barriers
• Etc

Competitive Dynamics
Rivalry
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Competition in the Pharmaceutical Industry

• Reps tripled to 90K last 10 years
• 12B on sales force, 2.76B on ads
• Managed care bet Pfizer from 14th to 1st
• 529 visits yearly, average length 2.5 min
• 8 remember
• Glaxo can reach 80 of the Drs in a week
• Is this necessary. No, but if my competitors do
  it and I cant, then Im at a disadvantage. This
  has been an arms race in the worst possible
  manner.

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Types of Competitive Responses

• First Movers - initial competitive action
• advantages and disadvantages
• Fast Followers or Capable Competitors- respond
  quickly to first movers
• Late Entrants - day late and a dollar short

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Chapter 9-10

• Corporate Level Strategy

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Beverages
Foods
Snack Foods
Frito-Lay North America Frito-Lay International
Quaker North America
Pepsi-Cola North America Gatorade/Tropicana North
America PepsiCo Beverages International
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Snack Foods
Frito-Lay North America
Funyuns Sunchips Cracker Jack Chesters
popcorn Grandmas cookies Munchos Smartfood
Baken-ets fried pork skins Oberto meat snacks
Lays Ruffles Doritos Santitas Fritos
Cheetos Rold Gold
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Snack Foods
Frito-Lay International
Bocabits wheat snacks Crujitos corn
snacks Fandangos corn snacks Hamkas
snacks Niknaks cheese sticks Quavers potato
snacks Sabritas potato chips Twisties cheese
snacks
Walkers potato crisps Walkers Square potato
snacks Walkers Monster Munch Corn snacks Miss
Vickies potato chips Gamesa cookies Dippas Sonric
s sweet snacks
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Snack Foods
Frito-Lay International
Bocabits wheat snacks Crujitos corn
snacks Fandangos corn snacks Hamkas
snacks Niknaks cheese sticks Quavers potato
snacks Sabritas potato chips Twisties cheese
snacks
Walkers potato crisps Walkers Square potato
snacks Walkers Monster Munch Corn snacks Miss
Vickies potato chips Gamesa cookies Dippas Sonric
s sweet snacks
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Beverages
Pepsi-Cola North America
Pepsi-Cola Mountain Dew Slice Mug Sierra
Mist FruitWorks
Lipton Dole Aquafina Frappuccino SoBe AMP
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Beverages
Gatorade/Tropicana North America
Gatorade Propel Tropicana Dole juices
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Beverages
PepsiCo Beverages International
Loóza juices and nectars Copella juices FruiVita
juices Tropicana 100 juices
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Foods
Quaker North America
Quaker rice cakes and granola bars Rice-A-Roni
side dishes Near East couscous/pilafs Aunt Jemima
mixes syrups Quaker grits
Quaker Oats Capn Crunch cereal Life cereal Quisp
cereal King Vitaman cereal Mothers cereal
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How are we going to compete and gain a
competitive advantage in each of our businesses?
Foods
Business Level Strategies
Quaker North America
Quaker rice cakes and granola bars Rice-A-Roni
side dishes Near East couscous/pilafs Aunt Jemima
mixes syrups Quaker grits
Quaker Oats Capn Crunch cereal Life cereal Quisp
cereal King Vitaman cereal Mothers cereal
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Snack Foods
Beverages
Foods
Corporate Level Strategy 1) What
businesses do we want to compete in? 2) How do
manage effectively across businesses
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Where did they go?
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Goals of Corporate Strategy

• Moves to enter new businesses
• Boosting combined performance of the businesses
• Capturing synergies and turning them into
  competitive advantages
• Establishing investment priorities and steering
  resources into business units

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4 Corporate Level Strategies

• 1) Vertical Integration
• 2) Strategic Outsourcing
• 3) Horizontal Integration
• 4) Diversification two or more different
  businesses with distinct operations

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1) Vertical Integration

• Forward or backwards
• Full integration
• Taper integration
• Benefits
• Build barriers to entry
• Facilitates investment in specialized assets
• Protecting product quality
• Improved scheduling
• Risks
• Costs
• Rapid technological changes
• Demand predictability

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Alternatives to Vertical Integration

• Competitive bidding
• Long term contracts or strategic alliances

Form of Relationship
Markets Competitive Bidding
Hybrid Contracts/Alliances
Vertical Integration
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2) Outsourcing

• Cost reduction and differentiation
• Hold-ups, scheduling and hallowing out

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3) Horizontal Integration

• Acquiring or merging with industry competitors
• Reduce cost and economies of scale
• Increasing value through wider product line or
  product bundling
• Manage industry rivalry
• Increase buyer and supplier power

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4) How to Diversify?

• 1) Internal Development - corporate
  entrepreneurship or internal venturing
• able to appropriate a larger portion of wealth
• avoids complexities of multiple partners
• time consuming and requires diversity of
  organizational capabilities

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4) How to Diversify?

• 2) Strategic Alliances and Joint Ventures
• entering a new market via the combination of
  complementary resources - do more together
• cost reduction sharing
• development/diffusion of technology
• Problems
• appropriate partners - skills and compatibility
• trust and commitment
• communication

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Who Makes a Geo?

• Geo Storm was actually manufactured by Isuzu. The
  Storm is the Isuzu Impulse.
• Geo Prizm Toyota Corolla
• Geo Tracker Suzuki Sidekick
• Geo Metro Suzuki Esteem or Swift w/hatchback
• No Geo cars were actually made by General Motors.
  They were all imported from foreign manufacturers.

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4) How to Diversify?

• 3) Mergers Acquisition

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Mergers Acquisitions
Reasons of Acquisitions Increase Market
Power Overcome Entry Barriers Increased
Speed Lower Risk Avoid Competition
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Acquisitions
Reasons of Acquisitions Increase Market
Power Overcome Entry Barriers Increased
Speed Lower Risk Avoid Competition
Problems with Acquisitions Integration of two
firms Overpayment/Debt Overestimation of
Synergy Overdiversification Managerial energy
absorption Become too large Substitute for
innovation
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Acquisitions
Reasons of Acquisitions Increase Market
Power Overcome Entry Barriers Increased
Speed Lower Risk Avoid Competition
Problems with Acquisitions Integration of two
firms Overpayment/Debt Overestimation of
Synergy Overdiversification Managerial energy
absorption Become too large Substitute for
innovation
Results
Poor Performance
Who Wins? Acquired Firm Shareholders
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Monday October 27th WSJ

• Bank of American Boston Fleet Financial
• BoA down 8.29, or 10, BFF rose 23
• Anthem WellPoint Health Networks
• Anthem down 8.2, WellPoint up 8.8
• United Health MidAtlantic Med Services
• UH down 4.9, MAMS up 9.7

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Failures of Acquisitions

• 30 - 40 average acquisition premium
• Acquiring firms value drops 4 in the 3 months
  following acquisitions
• 30 - 50 of acquisitions are later divested
• Acquirers underperform SP by 14, peers by 4
• 3 month performance before and after
• 30 substantial losses, 20 some losses, 33
  marginal returns, 17 substantial returns

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Why, then, do executives acquire?

• Often, for personal reasons
• Firm size and executive compensation are related
• When do executives loss their jobs?
• 1) Acquired - larger firms harder to acquire
• 2) Performing poorly - employment risk is reduced
  as returns are less volatile

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Related Diversification at Disney
Entertainment/Production
Theme Parks
Resorts
Entertainment/Broadcasting
Retailing
Cruise Lines
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Levels of Diversification

• Related Diversification - entering product
  markets that share some resource or capability
  requirements with the current business
  horizontal relationships across businesses -
  synergies
• Advantages of related diversification include
• Leveraging Core Competencies
• Sharing Activities
• Market Power

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Tyco Electronics Tyco Telecommunications Tyco
Fire and Security Tyco Safety Products Tyco
Healthcare Tyco Plastics Tyco Adhesives Tyco Flow
Control Tyco Electrical and Metal Products Tyco
Fire and Building Products Tyco Infrastructure
Services
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Levels of Diversification (cont.)

• Unrelated Diversification - few similarities in
  the resources and capabilities required among the
  firms businesses
• Conglomerate Diversification - no relatedness
  between businesses

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When/Why to Diversify?

• To create shareholder value
• Porters Three Point Test
• 1) Attractiveness Test
• 2) Cost of Entry Test
• 3) Better off Test
• Should pass all 3

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Portfolio analysis

• BCG Growth-Share Matrix
• question marks, dogs, cash cows, stars
• GE- Nine Cell Matrix

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Boston Consulting Group Matrix
Relative Market Share
Question Marks
Stars
Growth Rate
Cash Cows
Dogs
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BCG Matrix for PepsiCo - Early 1990s
Relative Market Share
Taco Bell
High
Growth Rate
Pizza Hut
10
Frito Lay
Soft Drinks
Low
KFC
Low
1.0
High
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BCG Matrix for PepsiCo - Early 1990s
Relative Market Share
Pizza Hut
Taco Bell
High
Growth Rate
Frito Lay
5
KFC
Soft Drinks
Low
Low
.75
High
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GE 9 Cell Matrix
Competitive Strengths
Low
High
High
Invest Grow
Hold
Attractiveness
Harvest Divest
Low
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GE 9 Cell Matrix for Pepsico
Competitive Strengths
Low
High
High
Snack Foods
Attractiveness
Soft Drinks
Low