session 10 macro & uncertainty

8/13/2019 Session 10 Macro & Uncertainty

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Strategic Management

Session 10

1Slides by Bobby Hajjaj


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Week 1: Introduction + Strategy, Vision, & Value

Week 2: History of Strategic Management + Game theory

Week 3: Competitive Advantage

Week 4: Industry analysis

Week 5: Macro environment & Uncertainty

Week 6: Corporate strategy & Diversification

Week 7: Global Strategy

Week 8: Managing the Multibusiness Company

Week 9: Strategic planning

Week 10: Review

Course Structure



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Review of your exam:

Stick to the question asked

Think you are writing for someone else

Dont write any more than required

Examples are used to clarify a concept not to confuse

Use the material provided in class (slides/lectures)



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Suggested questions for your

Case 4

Questions:

1. How is the competitive environment changing?

How are firms responding to these changes?



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Macro-environment (PESTLE)

Industry life cycle

Dominant design

Strategic uncertainty

Key Concepts and Techniques



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Organization and Environment

Organization

Industry

Macro-environment



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The Macro-environment(PESTEL)

Organization

Legal

Ecological

Technological

Sociocultural

Economic

Political



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The Macro-environment(PESTEL)

Organization

Political- Government stability- Lobbying- Community relations

Economic- Inflation, recession

- Interest rates, GNP- Business cycles

Sociocultural- Demographics

- Lifestyle- Attitudes, preferences

Technological- Product technologies- IT, process tech.- Govt R&D support

Legal- Competition law- Employment, tax law- Health & safety laws

Ecological- Waste disposal

- Energy conservation- Community benefit



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9

Institutions enhance well-functioning markets

by:

Lowering transaction costs

Reducing information asymmetries

Providing rules of the game

Emerging markets: the institutional

view

Slides by Bobby Hajjaj


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10

Institutional Voids

Definition: Absence of institutions that facilitate well-functioning markets

Liberalization and deregulation do not automatically lead to the building of awell-functioning market economy

The emergence of market-facilitating institutions may be impeded inemerging markets because of: Social and political systems Vested interest

Minimal openness

Cf. Institutions (particularly informal rules) may change only very slowly(Sociological non-rational choice view) Weve always done it this way

Its just the way things are done here

Source: T. Khanna, et.al., Strategies that fit emerging markets, HBR, June 2005



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What do Institutions do?

Credibility enhancers

Information analyzers and advisors

Aggregators and distributors Transaction facilitators

Regulators and other public institutions

Adjudicator



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New entry- A foreign competitor enters the market (Honda)- An entrepreneur enters the market (Southwest Airlines, B&J)

Changes in industry costs or technology

- Labor costs rise in UK relative to Asia, relative to capital- The internet reduces marketing and distribution costs

Changes in customer demand- Boeing: United Airlines bankrupt, cancels a large 747 order- Electric Boat: Defense Department orders 38 new submarines

Changes in government regulation- Deregulation of airlines, banking, telecommunications- 24-hour drinking law

Industry Change



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Changes down the vertical chain- Wal-Mart consolidates the retail industry- Motorola requires accounting firms to adopt TQM

Competitor introduces a new product or service

- American Airlines introduces frequent flyer miles- Apple introduces the ipod

Changes up the vertical chain- A labor union strikes- Middle East oil supplies are cut

An unexpected competitive move- Mattel attempts a hostile takeover of Hasbro- HP acquires Compaq

Industry Change



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Disruptive Change

Competence-enhancing change A natural outgrowth of existing organizational skills and advantages

Enhances strengths, opportunities; eliminates weaknesses, threats

Initiated by incumbents; improves industry structure for incumbents

Example: radio to television to digital television

Competence-destroying change Makes existing skills and advantages obsolete

Reduces strengths, opportunities; creates weaknesses, threats

Initiated by new entrants; degrades industry structure for incumbents

Examples: slide rules to electronic calculators, carriages to automobiles

Sources:

W. Abernathy & K. Clark, Innovation: Mapping the winds of creative destruction, Research Policy, 1985.M. Tushman & P. Anderson, Technological discontinuities and organizational environments,Administrative Science Quarterly, 1986.14Slides by Bobby Hajjaj


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Industry Life-cycle

Industrysales

Time/Stage of industry life cycle

Introduction MaturityGrowth Decline



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Industry Life-cycle

Industrysales



- Uncertainty- Small market- Slow growth- Low entrybarriers

- Low rivalry

- Fast growth-Entry & exit- Unstable

- Slowing growth

- Large market- Consolidation-Entry barriers- Rivalry

-No growth

- Large market- Stable- Cost efficient



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Product and Process Innovation

Rate ofinnovation



Productinnovation

Processinnovation

Source:W. Abernathy & J. Utterback, Patterns of industrial innovation, Technology Review, 1978.



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Dominant Design

An industrys prevailing business paradigm:

product design, services, customers, distribution

Tennis racquets

PC operating systems

Automobiles, space ships

VHS DVD



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Innovation and Dominant Design

Rate ofinnovation

Time/Stage of innovation life cycle

Ferment MaturityTakeoff

Productinnovation

Process

innovation

Dominant design

Source:F. Suarez & J. Utterback, Dominant design and the survival of firms, Strategic Management Journal, 1995.



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Positive & negative networkexternalities


Positive

network

externalities

Negativeexternalities:

exclusivity

products

Designerjewellery

Telephone

Luxury cars

Computer

operating

system


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Winning a standards war:


Assembleallies

Pre-emptthe markets

Manageexpectations


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Ferment (Variation)- Rival product features, distribution methods, business models- Rapid product innovation; rapid entry and exit- Digital music, cloning, robots, video game consoles

Takeoff (Selection)- Incremental product innovation; surviving business models- Exploiting the possibilities of the dominant design- Surfboards, mobile phones, microchips, internet search

Maturity (Retention)- Product commoditized; focus on process, cost efficiencies- Search for scale and scope economies; industry consolidation-Mid-sized cars, airlines, hardware retail, steel, brewing

The Innovation Life-Cycle



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Generations of DominantDesign

Sales

Time

Vinyl records 8-track tape Cassette tape CD Digital download

1

43

2

5

1 432 5

Example: Music delivery media



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Strategy and Uncertainty

Industrysales

Time

The dominantdesign is here

An emergingdesign is here

today



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The online university scenario

Industrysales

Time

today

traditionaluniversities

onlineuniversities



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The slide-rule scenario

Industrysales

Time

today

Slide rulesCalculators



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NSU & the first mover advantage


The obvious first mover advantage:- patent or copyright

Other less tangible advantages:i. pre-empting scarce resourcesii. reputation

iii. setting the standard (technology, product and process)

iv. moving along the learning curve faster

v. early profit-flow permitting further investment


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BCGs strategic environments matrix


FRAGMENTED

Apparel, house-building,

jewellery retailing, sawmills

SPECIALIZATION

Pharmaceuticals, luxury cars,

chocolate confectionary

STALEMATE

Basic chemicals, volume-grade

paper, ship owning, wholesale

banking

VOLUME

Jet engines, supermarkets,

motorcycles, standard

microprocessors

Sources of

advantage

Small

Size of advantage

Big

Many

Few


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Level 1: Clear enough future- The main contingencies are few and knowable-Example: Decision depends on cost of entering a market

Level 2: Alternate futures- A few clear scenarios, but probabilities are unclear

-Example: Decision depends on a rival making an acquisition

Level 3: Range of futures- No natural scenarios, but a range of possible outcomes- Example: Decision depends on success of a new product

Level 4: True ambiguity- Multiple forms of uncertainty; cannot identify key factors-Example:Entering the financial services market in Iraq

Four Levels of Uncertainty

Source: H. Courtney, J. Kirkland, & P. Viguerie, Strategy under uncertainty, Harvard Business Review, 1997. 29Slides by Bobby Hajjaj


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Three Strategic Postures

Industrysales

Time

Shape

Adapt

Hedge

Source: H. Courtney, J. Kirkland, & P. Viguerie, Strategy under uncertainty, Harvard Business Review, 1997. 30Slides by Bobby Hajjaj


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Japanese firms employed the methods of Deming &Juran

Apple led the computer industry into entertainment

GE evolved from diversified products to global services

INSEAD expanded to Singapore

Dietzgen diversified into the paper industry

Las Vegas casinos became family-friendly

Australian wine producers changed global industry rules

Shaping Industry Change



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Managing Strategic Risk

Small

Small

Large

Large

Downside risk

Potential

payoffs

Options- Hedgers-pilots, jv

A PORTFOLIO OF STRATEGIC ACTIONS

Big bets- Shapers- Bet the firm

No regrets- Adapters- costs, training

Sources:H. Courtney, J. Kirkland, & P. Viguerie, Strategy under uncertainty, Harvard Business Review, 1997

E. Beinhocker, Strategy at the edge of chaos,McKinsey Quarterly, 1997 32Slides by Bobby Hajjaj


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1. Define the scope of the analysis

2. Indentify the major stakeholders

3. Indentify basic trends

4. Indentify uncertainties5. Construct initial scenario themes

6. Check for consistency and plausibility

7. Develop learning scenarios

8. Identify research needs

9. Develop quantitative models

10. Evolve toward decision scenarios

Scenario Analysis - I

Source: C. Fleisher, B.. Bensoussan, Strategic and Competitive Analysis, Prentice Hall, 200233Slides by Bobby Hajjaj


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Define the planning scope

Identify the drivers of change (PESTEL)

Develop mini-scenarios (7-9)

Combine and reduce to 2-4 scenarios

Identify strategic consequences of each

Scenario Analysis - II

Source: P. Schoemaker, Scenario planning: A new tool for strategic thinking, Sloan Management Review, 1995.



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No sense of urgency; no perceived crisis

No convincing vision for change

Lack of involvement, lack of trust

Middle-management self-interest, concern for job loss

Changing strategy alone, without systems, processes, culture

Institutional inertia, status-quo bias

Threat to institutional features: symbols, heroes, habits

Ignorance of informal organization: communication, politics

Obstacles to Strategic Change

Source: J. Kotter, Leading change, Harvard Business Review, 199535Slides by Bobby Hajjaj


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1. Create a sense of urgency; articulate a crisis

2. Form a coalition of managers to lead the change

3. Communicate a strong, engaging vision for a better future

4. Alter structure, systems, processes, etc. to achieve the vision

5. Arrange visible, short-term successes to encourage progress

6. Delegate: empower other people to act on the vision

7. Find ways to measure progress; make adjustments as needed

John Kotters advice to change

agents

Source: J. Kotter, Leading change, Harvard Business Review, 199536Slides by Bobby Hajjaj


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That is all for today folks.


session 10 macro & uncertainty

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