BUS 189 – Jan 4, 2011

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MVV
Vision doesn't change that much throughout life of org; Mission can change; Values you can add
to, but typically wouldn't change
: Every yr when you sit down to do a strategic plan, look at MVV and say is it still valid?
: opps to expand

General – Macro Lvl (affects all firms)

Industry – Medium Lvl (affects only firms in our industry)
Operating Environment (only affects our firm/specific to us)

3 5-letter acronyms affect

2 diff kind of plans for biz

profit/operating/biz plan ← for 1 fiscal yr duration (1 financial yr)
in CA, starts July 1 – Jun 30 (fiscal yr)
gov't = Sept 1 – Oct 31
For most co.'s, calendar yr is the same (Jan 1 – Dec 31)
commercial retailers – Mar 1 – Feb 28

Strategic plan > 1 yr

can be quite long-term
in valley, b/c of dynamism and complexity of environment most Silicon Valley hi-tech co.'s
operate, strategic plan = 1 product life cycle → typically 3 yrs
multi-yr plan (not 10 yrs)
For most co.'s, 3 yr time frame

Looking at these elements of the general environment, what chg's do we foresee that will create
opps or pose threats that we need to respond to? (there may be a lot of stuff going on, but we
don't care about)

GENERAL
STEEP
Sociocultural: tastes, demographics
: e.g. TV programming, retail biz: designing, clothing; chg'ing consumer tastes ← concern
: is environment becoming more ethnic? More mobile? Older? Richer? Etc.
Technology
Economic: what's going on w/Economy over next 3 yrs? Interest rates. Biz of lending $$ (auto,
houses) something care great deal about it; in today's economic environment, how long take for
mess to turn around
Ecology: green movement; chg's that occur b/c of environmental or ecological issues (can't use
PCDs anymore; CFCs b/c destroy ozone layer, etc)
Political/Legal: What's the impact of Jerry Brown administration on our biz? What political /
legal chg do we anticipate... impact?

INDUSTRY
BARBS (5 forces model)
Barriers to Entry: Patents
: e.g. bldg airplanes
Availability of substitute products: sometimes you can foresee chg's that opps/threats
Rivalry among firms: new players entering mkt to create competition; do we have old players
exiting mkt? Strategies for growth; mkt concentration/penetration (reliable growth strategy),
take customers away from existing co.'s ← grow biz by inc'ing → advert/mktg costs will go up for
existing co.'s;
: When was last time saw funeral home advertisement?
Buyer Power: if you are a retail automobile dealer, you will notice, customers are a lot smarter
than they used to be (if they do their HW)
Supplier Pwr: best e.g. = OPEC; if we use petroleum oil-based prod.'s, we're gonna pay w/e
OPEC says we're gonna pay
: in 80s Catalytic Converter; catalyst was platinum (expensive); came up w/one
: paladium ← converted platinum to paladium (inexpensive)
: most is located in Russia (all this demand for paladium) ← supplier pwr
: behave opportunistically wrt to customers
: Henry Ford (paranoid about supplier pwr); started his own steel co.
: Ford Steel. (now Rouge Steel) ← prevent his suppliers from acting
opportunistically (friends w/Firestone)
: backward vertical integration (getting back into biz of their suppliers)
: why oil biz often go into exploration biz; offset pwr of OPEC
: steel co.'s go back into coal/iron ore mines → worry about supplier pwr
looking for chg's in general or industry environment; chg's that create opps or pose threats that
we need to respond to

it would be unlikely that one or 2 of these 5 would cause movement to respond; don't need to
find all 10 ← all 10 of these chg'ing simultaneously is rare
OPERATING
CCCLS ← applies only to “us” and “our firm”
Customers: specific customers we do biz w/ → are there chg's; what kind of financial health are
they in? Chg's in customer preferences; need less/more? Difficulty paying; what chg's do
we expect from our customer base (specific customers w/whom we do biz) that create
opportunities or pose threats
Creditors: not usually an issue but has been for last 24 mo.'s; what kind of interest rate to be
expected? Why economy not turning around, b/c bank's got ton of $$ but loaning to
anybody; (Leveraged Buy Out) what's happened to our credit rating and are we
Competitors:
Labor: 4.5% unemployment for college grads even though 12% CA
: are we going to be able to get the ppl we need to get sales
: Bill Gates involved w/K-12 education (we are falling behind) even though spending
more $$ per student than any other; education system has failed us
: Microsoft is being forced to contract out more and more biz offshore (India)
: they've actually had a shortage of qualified employees
: are we going to be able to find the ppl w/the right skills to help our co. grow?
: labor union; what kinds of demands are we likely to encounter? Labor supply for our
co.; right ppl w/the right skills
Suppliers: suppliers from whom we buy our product (spec co.'s)
: Industry Suppliers – all suppliers in industry; this is specific co.'s we do biz w/
: e.g. GE
: are our suppliers going to be able to meet our needs?

-SWOT Analysis and job of managing environment

-understand where opps/threats are coming from and determining whether or not to respond
: co.'s that do well w/this are successful; those who do not are not
Understanding your environment
: forecasting and predicting where opps/threats will be coming from; dealing and responding to
them ← co. that does this well is SW Airlines (founded in 70s)

No one foresaw 9/11 (huge impact on environment)

you're going to miss a few b/c unpredictable
more time and nrg spend doing this well, more likely your co. will be successful
given strengths or core competences and source of competitive adv
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3rd Step
LTO
Long-term Objectives
as we look at MVV
What are our long-term objectives?
: want to be #1 or #2 in mkt
: inc mkt share by 10%
(none of these can be completed in 3 yrs)
: diff duration from 3 yr duration
: working toward but not get done in next 3 yrs

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Next step
2nd important step in process (after SWOT) but 4th step overall
Strategic Choice
STRATEGY
Model for making what strategy you are going to pursue
9 choices
Look at a matrix w/Product + Mkts on axes; New and Existing for each
Product
N E
M
k E
t
s N

Mkt Penetration (Existing Product; Existing Mkt) Strategy ← gain mkt share
: grow firm by gaining share (staffing; MFG capacity; sales, mktg, promotion, etc)
Product Development Strategy: Latest model of w/e (New Products but selling to Sam Mkt)
: e.g. iPod
Mkt Development: Existing product in new mkt (e.g. going to sell in Europe)
: e.g. SW flying to Atlanta, Mexico and Caribbean (something they haven't done before)
: opening up new mkts but w/same product
Diversification: new everything (ITT)
: GE (makes a bunch of stuff; world's largest finance co.)
: United Technologies; makes carriers, ACs, helicopters, etc.
: ABB (european co.) over 400 divisions; very diverse co.
: what you'll find is that today; when co.'s execute a policy of acquisition, almost always
try to show lots of synergies involved (related diversification rather than unrelated
diversification) b/c Wall Street doesn't like diversification
: e.g. Viacom bought CBS: not new biz but closely related to biz already in
 : lots of synergies and opportunities for savings
: Disney bought ABC (theme parks; cruise lines) ability to deliver content
: want Wall Street and investors to believe it is a related synergy (cost-saving)

PRODUCTS
New Existing
MARKETS New product market
development penetration
Existing diversification market
development

These are strategies for growth

not down-sizing, restructuring
our job is to ensure long-term survival of firm

Escalation of commitment
: way for managers to avoid making decisions they need to make
don't think about sunk costs, but what to do from this point fwd

3 more options for growing biz

Integration Strategies
Integration: we entered mkt by buying a co.
Horizontal: HP buying Compaq; Oracle buying PeopleSoft; Ford buying Mazda (buying one's
competitors) GM owns Saab; BMW owns Rolls-Royce (that kinda stuff)
: gov't doesn't really like; don't see a lot but some instances exist
: Oracle buying Sun (not sure that is horizontal integration, a little bit of getting into new
mkt, but Sun is in hardware; Oracle is in software) almost a diversification
: sometimes line is a little grey
Vertical: vertically in supply chain
: backward means going upstream; biz of our suppliers (Ford starting own steel co.)
: steel co. buying its own coal mine; gas co. doing its own exploration
: sometimes driven by (but not always) a concern about supplier power
: forward competing w/customers; Apple opened up a bunch of retail stores
: own distributors (sell to customers); same co. that refines oil and makes gasoline opens
up retail gasoline stations ← fwd vertical integration
Any time go into biz upstream = backwards vertical integration

8 principle strategies for growth

Product Development
Market Penetration (sometimes Concentration; essentially, gaining share)
: if market grow 10%, you grow 10%, you're holding your own, but if you grow > mkt,
then gaining customers (most co.'s in battle to gain mkt share)
: e.g. McDonald's v Burger King; now it has salads and coffee (product development)
: SW defines as 2-city pair (SFO didn't use to fly there); they don't fly to big airport in
Denver, Chicago (O'Hare) or DFW (Dallas); every time it has flown to new city, done a
mkt development strategy
Diversification
Market Development
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Implementation
(management by objectives)
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Last Step is CONTROL

: What are the critical issues? Benchmarks? Questions we should be asking?
: program on PBS (Charlie Rose [Rowes?])
: one of the critical skills that successful managers develop is asking the right questions
: if you don't ask the right questions, not gonna get info you need to make decisions
: tracking

Roughly model for Strategy we will use in course.

Think in these terms for case studies.

What are MVV? Stay consistent w/it.

Do SWOT Analysis.
Long-term objectives (5-10 yrs)
What strategy for growth do we wanna use?
: Recognizing that strategy may not be one of growth, but of survival.

8 Strategic Courses
1 – Product Development
2 – Market Penetration
3 – Market Development
4 – Related Diversification
5 – Unrelated Diversification
6 – Horizontal Integration
7 – Forward Vertical Integration
8 – Backward Vertical Integration

CASE STUDY: Robin Hood

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