what is strategy?: creating value for shareholders and stakeholders paul c. godfrey mark h. hansen...
TRANSCRIPT
![Page 1: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/1.jpg)
What is strategy?:Creating value for
shareholders and stakeholders
Paul C. GodfreyMark H. Hansen
Marriott School of Management
Brigham Young University
![Page 2: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/2.jpg)
![Page 3: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/3.jpg)
1984 Profits: $242 Million
Theme Park Operations: 77 percent of profits
Consumer Products: 22 percent of profits
Filmed Entertainment: 1 percent of profits
Walt Disney Company
![Page 4: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/4.jpg)
Hired Michael Eisner - 1984
1. Increased admission prices at theme parks1984 - $186 m 1989 - $787 m
2. Focused on movie studios (character development)1984 - $2.42 m 1994 - $845 m
3. Diversified into television (ABC), hotels, retail stores,sport team, cruise line, publishing, consumerproducts, licensing, etc. (Huey & McGowan, 1995)
Walt Disney Company
Market Cap: 1984 = $2 billion 1994 = $28 billion
![Page 5: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/5.jpg)
What is Strategy?
• Strategy is the search for a sustainable competitive advantage over rivals– the search for economic rents
• Competitive advantage as shareholder value:– “above-average performance in the long run” (Porter, 1985) – “sustained superior financial performance” (Barney, 1986)– “persistent high relative profitability” (Thomas, 1986)
• Competitive advantage as stakeholder value:– “a value-creating strategy not simultaneously being implemented by
any current or potential competitors” (Barney, 1991)– the ability of a an enterprise to “create more economic value than
the marginal (breakeven) competitor in its product market” (Peteraf & Barney, 2003)
![Page 6: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/6.jpg)
Competitive Advantage
The Ability to Create More EconomicValue Than Competitors
• there must be something different about a firm’soffering vis-à-vis competitors’ offerings
• if all firms’ strategies were the same, no firmwould have a competitive advantage
• competitive advantage is the result of doingsomething different and/or better than competitors
![Page 7: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/7.jpg)
What is Shareholder Value?
• Shareholder value is the share price of the firm
• The primary responsibility of management– Milton Friedman (1970): The social responsibility of business is to
make a profit
• Share price allows comparisons between companies with and across industries/sectors
• Share price is based on the future expected returns (dividends and capital appreciation) of the firm
t
tt
t
t
r
P
r
DivP
)()(
110
0
![Page 8: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/8.jpg)
What is stakeholder value?
• Stakeholder value is how much a product, service, employment or other relationship is worth relative to other things stakeholders could do
• Value creation (broadly defined) is the strategic objective of the firm– Competitive Advantage is the ability of a an enterprise to “create
more economic value than the marginal (breakeven) competitor in its product market” (Peteraf & Barney, 2003)
• Stakeholder value captures the value of the firm relative to its nearest competitors (opportunity costs)
• Stakeholder value and shareholder value are related, but not the same
![Page 9: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/9.jpg)
Economic Value: The traditional view
ConsumerSurplus
ProducerSurplus(profit)
Cost of Inputs
Economic Value
Price
Economic Cost
![Page 10: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/10.jpg)
Economic Value: An expanded view
ConsumerSurplus
Producer Surplus(profit)
Minimum Cost of InputStakeholders’ Participation
Economic Value
Price (Marginal Customer Reservation Price)
Economic Cost
Supplier Surplus
Employee Surplus
Other Surpluses
Sum of Reservation Prices
This view suggested by Jones and Wicks (2008)
![Page 11: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/11.jpg)
Two models of shareholder value
ConsumerSurplus
Producer Surplus(profit)
Supplier Surplus
Employee Surplus
Other Surpluses
Sum of Reservation Prices
ConsumerSurplus
Producer Surplus(profit)
Supplier Surplus
Employee Surplus
Other Surpluses
Sum of Reservation Prices
Economic Value
ConsumerSurplus
Producer Surplus(profit)
Supplier Surplus
Employee Surplus
Other Surpluses
Sum of Reservation
Prices
Re-slice the pie Grow the pieThe pie
![Page 12: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/12.jpg)
Re-slice the pie
• Economic value is fixed
• Competition
• Win-lose relationships
• Spillovers not possible
• Key objective: Identify relevant reservation prices
• Shareholder value at the expense of stakeholder value
• Examples: Auto industry, ca 1970; Airline industry, while regulated
• Economic value is variable
• Co-opetition
• Win-win relationships
• Spillovers critical
• Key objective: creating incentives to innovate
• Shareholder value along with stakeholder value
• Examples: Auto industry, SUV & cross-over offerings; Airline industry, Southwest Airlines, industry after deregulation
Grow the pie
![Page 13: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/13.jpg)
Business and economic value
• Marketing:– From creating customer demand to uncovering value opportunities
• Human Resources:– From compliance and gate-keeping to creating specific assets and
knowledge spillovers
• Supply Chain Management:– From weeding out inefficiency to creating alliances and value spillovers
• Culture:– From “touchy-feelies” to concrete expectations/ norms for excellence
![Page 14: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/14.jpg)
What is Strategy?
• Strategy has to do with choosing among alternative paths for translating goals into action in ways that create competitive advantage
• Strategy is long term
• Strategy is the heart of economic value
• Strategy involves attitudes, activities, and assets
• Strategy differs from operational effectiveness
• Operational effectiveness can not grow the pie
• Strategy is about NOT DOING certain things
• Strategy is a “map” of where you want to go, what you have, and what you need to get there
![Page 15: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/15.jpg)
The Strategy Puzzle
External Fit Added Value
Scope Internal Fit
![Page 16: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/16.jpg)
Added Value
• How does the business add value to its customers?
• How does the business add value to other stakeholders?
• Does the value added justify the cost of the product?
• What benefits accrue from doing business with the firm (input or output)?
Added Value
![Page 17: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/17.jpg)
External Fit
• What is the structure of the industry?
• How is the industry related to the general economy? Other industries?
• What competitive dynamics drive the industry?
• What strategic positions are available? Which are attainable?
External Fit
![Page 18: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/18.jpg)
Scope
• What businesses is the corporation in?
• What businesses could the corporation enter?
• Which new businesses would add value to existing customers?
• Can new products or services give the firm access to new customers?
Scope
![Page 19: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/19.jpg)
Internal Fit
• How does the firm structure its operations?
• How is authority spread in the organization?
• What is the firm’s culture? What are the shared values?
• What level of alignment exists between the internal elements of the firm?
Internal Fit
![Page 20: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/20.jpg)
Strategic Position
• How does the firm position itself in the industry to maximize its economic value?
• 08 January—22 February
• Industries: Soft Drinks, Construction Materials, Motorcycles, Airlines
External FitAdded Value
![Page 21: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/21.jpg)
Strategic Leverage
• How can the firm parlay its existing resources in to new value-added businesses?
• 24 February—26 March
• Companies: Intel, Ciba-Geigy, Arauco, Newell, OSI, Google
Added Value
Scope
![Page 22: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/22.jpg)
Strategic Alignment
• How should the firm structure its internal operations in order to maximize its value added?
• MBA 682
• Strategy Implementation & General Management
Added Value
Internal Fit
![Page 23: What is strategy?: Creating value for shareholders and stakeholders Paul C. Godfrey Mark H. Hansen Marriott School of Management Brigham Young University](https://reader036.vdocuments.mx/reader036/viewer/2022062804/56649e1a5503460f94b07a5e/html5/thumbnails/23.jpg)
Managing Me, Inc.
• The most important firm you will ever direct is you
– Professionally
– Personally
– Marriage & Family
• What role will strategy play for you?