Instructor: Michael Cooke - PowerPoint Presentation

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Instructor: Michael CookeE-mail Address: michco@kku.ac.thOffice: IC room 817Class hours: Tuesday 09:00-12:00Class Location: IC room 822

Business Strategy

050 322

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The number of chicken restaurants in Korea has tripled to 36,000 in ten yearsMany of these are family ownedFamilies use homes as collateralInterest rates are lowSouth Korean household debt is risingIncreased by 35% as percentage of income since 2003Similar story through much of Asia as growth slowsSingapore and Hong Kong have property boomsThese come with rising consumer debtKoreans borrow because of retirementThe population is agingMany companies force employees to retire in their 50sPensions are too small so families start businessesAmong working Koreans in their 50s, 32% are self employedMost of the restaurant businesses fail7,400 fried chicken restaurants open every year5,000 go bankrupt80% fail within 10 years, half within 3 yearsAging Koreans use property as collateral to open these businessesGovernment now limits franchises from opening too many outlets in the same area

Wall Street Journal 13-9-2013

Korean Fried Chicken

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In 13 years running a fried chicken business a 65 year old owner has had no holiday and works 15 hours per day*This owner still falls behind in debt paymentsTwice fried Korean fried chicken became a popular food in 2002, during the World CupWhere an area had 3 chicken joints in 2000, it now has 11What does KFC have to do with business strategy in Thailand (or elsewhere)?We will cover demographics, the competitive landscape, the role of government, and business resources (financial and human)*Wall Street Journal 16-9-2013The Life of a KFC Owner

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No.Criteria%1Midterm Examination

20

2

Final Examination

30

3

Presentations

20

4Quizzes and participation30 Total100

-Students must be punctual to take a quiz. Early exit is scored as no participation.-Disrupting the class may be marked as absent. Absence scores zero participation.-The university enforces an 80% attendance policy (maximum 3 absences allowed).

Course Syllabus

Student Evaluation

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Plan for the SemesterWeekStartingTopicReading for

the Week

1

15 October

Introduction to the course – Korean Fried Chicken

David pp 36-69

2

22 October

Business Mission, Agency ProblemsDavid pp 74-89, Kodak329 OctoberExternal Assessments & Porter

David pp 92-1194

5 November

Global Business

Environments/EntryZhang pp 1-17 & 26-28512 NovemberInternal AssessmentDavid pp 122-160619 NovemberTypes of StrategiesDavid pp 162-203726 NovemberStrategy Analysis SWOT, BCGDavid pp204-24183 DecemberStrategy Implementation - 1David pp 242-28199-16 DecemberMidterms1017 DecemberImplementing Strategies -2David pp 282-3151124 DecemberStrategy Review and ControlDavid pp316-339127 JanuaryBusiness Ethics and ReviewDavid pp 342-3551328 JanuaryPresentations144 FebruaryPresentations1511 FebruarySpecial topics – limits of the firm1617 Feb-6 MarFinal Examinations

David, Fred R. (2011) “Strategic Management” Pearson, Upper Saddle River NJ,

USA

Zhang, Z. John, and Zhou, Dongshen (2007) “The Art of Pricewar” Wharton-University of Pennsylvania

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We will follow the above sequence while allowing for a more international perspective than the David text offers.Graphic: Copyright © 2011 Pearson Education, Inc.

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A Painting of 17th-century Venice, with a view of the Doge’s Palace, by Leandro Bassano

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The Law of Large Numbershttp://news.cnet.com/8301-13579_3-57581059-37/apple-newest-victim-of-the-law-of-large-numbers/?tag=nl.e703&s_cid=e703&ttag=e703A passage from a recent Cnet article about a technology company: “transition from being considered a "high-growth tech stock, valued on its monster potential" to just another "cash cow, valued on its ability to pump hundreds of billions of dollars into its shareholders' pockets.“Who is this article about?The title of the article is ‘The Law of Large Numbers’. Any guesses what this means in the context of business strategy?How are growth companies and cash cows different?

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Strategy DefinedMany definitions of business strategyJohnson and Scholes: "Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations".Alfred Chandler's definition: "determination of the basic long-term goals and objectives

of an enterprise, and the adoption of

courses of action

and the allocation of resources necessary

for carrying out these goals."

Business dictionary:

1. A method or

plan

chosen to bring about a desired future, such as achievement of a goal or solution to a problem.2. The art and science of planning and marshalling resources for their most efficient and effective use. The term is derived from the Greek word for leading an army.Harvard Business School: You can't develop a strategy for your business without first thinking through mission and goals. Likewise, you can't develop a coherent strategy in isolation from decisions concerning the network of partners with whom the business will co-create and capture value. By focusing on all four elements, and sequencing them in the right way, the process of crafting strategy can be demystifiedMost definitions have these elements in common:GoalsResourcesPlans

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Strategy or Strategic PlanningStrategic Planning or Strategic Management seeks to exploit and create new opportunitiesLong Range Planning generally optimizes today’s trendsOrganizations should continually monitor internal and external events and trends to adapt to changesStrategic Management at most universities integrates material from all business courses (a capstone course)Since many of you have not yet taken accounting, economics, and so on, we will be somewhat limited in our objectivesMy bias is a finance and marketing perspective

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From “Only the Paranoid Survive”Andy GroveWe live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don't expect.If you run a business, you must recognize that no amount of formal planning can anticipate such changes (strategic inflection points). Does that mean you shouldn't plan? Not at all. You need to plan the way a fire department plans: It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event.

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Strategic Inflection PointsExcerpts from “Only the Paranoid Survive”Strategic inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time defining what has changed.Strategic inflection points are often first identified by sales managers.Strategic inflection points do not always lead to disaster. When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth.You can be the subject of a strategic inflection point but you can also be the cause of one. Intel has been both. In the mid-eighties, the Japanese memory producers brought an inflection point so overwhelming that it forced Intel out of memory chips and into the relatively new field of microprocessors. The microprocessor business that we have dedicated ourselves to has since gone on to cause inflection points for other companies.

The increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don't expect.

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How to recognize inflection points (Grove)So how do we know whether a change signals a strategic inflection point? First, we must figure out who our key competitor is. When the answer to this question is not as clear as it used to be, it’s time to sit up and pay special attention. Does the company that in past years mattered the most to us and our business seem less important today? Does it look like another company is about to eclipse them? If so, it may be a sign of shifting industrydynamics.The Cassandras (they make accurate predictions, but are not believed) in the organization are a consistently helpful element in recognizing strategic inflection points. Although they can come from anywhere in the company, Cassandras are usually in middle management. Often they work in the sales organization. They usually know more about upcoming change than the senior management because they spend so much time “outdoors” where the winds of the real world below in their faces.http://www.vedpuriswar.org/book_review/only_the_paranoid_survive.pdf

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There is no substitute for knowing the businessMaurice Greenberg CEO, AIG, Inc., 1968-2005AIG’s legendary risk management was mostly in the head of one man: Hank GreenbergHe would get raw data. He made assessments.Extremely complex organization with hundreds of subsidiariesWhat happened when Maurice Greenberg left AIG?The new CEO did not understand risks taken by distant units. The culture did not support succession.AIG Collapse (word document)

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Adapting to ChangeWhat new competitors are entering our industry?How are our customers changing?Are new technologies being developed or deployed which present new opportunities or threats?Are we in the right businesses?How can a company identify change?

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Sole Proprietorships Need to PlanExample sidewalk vendor in BangkokRents space in front of a businessBuys food for cooking and resaleHas a helper, or twoOwns some basic equipment, purchased with family fundsSkilled cook, good location, good price = many customersBut:Business and family funds are comingledRevenue from business goes to family consumptionExpenses are ‘lumpy’ (due only at certain times)Problem arises when bills for rent or supplies are due, when equipment needs maintenance or replacement, or at paydayThe business environment changesNeed to understand resources of the business and marketingIf co-existence is the aim, still have “5 Forces” long term issues

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Ch 1 -17External Opportunities and ThreatsAnalysis of TrendsSocial, Economic, Demographic CulturalPolitical, Legal, GovernmentalTechnologicalCompetitorsLegal and Regulatory changes affect how business can operate and where they can find profit

Lobbying seeks to influence government to steer the direction of change (or to build moats)

Larger companies may have people designated to monitor external threats and opportunities

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Ch 1 -18Controllable activities performed especially well or poorlyDetermined relative to competitorsTypically located in functional areas of the firmManagementMarketingFinance/AccountingProduction/OperationsResearch & DevelopmentManagement Information Systems

Internal Strengths and Weaknesses

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Competitive AdvantageCash can be a competitive advantageFewer fixed assets may be a competitive advantageLess debtMore flexibilityAnything that a firm can do especially well (or is perceived to do very well) compared to competitorsNo competitive advantage lasts forever – continuous innovationSustained competitive advantageContinually identifying and adapting to changeProduct innovation is often purchasedSuccess is often a trap – complacency and entrenched interests

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Long Term Objectives and MilestonesCh 1 -20Long-term objectives are specific results required to achieve the company mission – strategies are the means by which objectives are reachedStrategy implementation requires resource allocation decisions and annual objectivesAnnual objectives are milestones required to reach longer term objectivesThese are quantifiable and prioritizedAnnual objectives form the basis for resource allocation decisionsStrategy implementation requires enlisting the support of diverse individuals All areas of an organization participate in annual objectives Policies guide recurring situations – these state expectations of employees and managers

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Commonly Used Business IdiomsFrom “Market Leader ”Goldman’s executives are on the warpath about a book. (very angry)Adversaries will do battle in court. (fight)If Apple loses the court case, that’s half the battle. (the rest is easy)That company has had a running battle with the patent office. (series of arguments)Samsung has stuck to their guns about patent invalidity. (maintained their point of view)They are up in arms about vague patents. (angry and ready to fight)Management

moved the goalposts

for our bonus pool. (changed their decisions or aims)Samsung hedges its bets

by creating alternate designs. (reduces chances of failure)The odds are stacked against us

in this dispute. (there are many difficulties)

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1) The Humble Beginning of a LegendIn early 1781, Revolutionary War militia leader Francis Marion and his men were camping on Snow's Island, South Carolina, when a British officer arrived to discuss a prisoner exchangeAccording to a legend that grew out of the meeting, the British officer was so inspired by the rebels’ resourcefulness and dedication to the cause—despite their lack of adequate provisions, supplies or proper uniforms—that he promptly switched sides and supported American independence.Francis Marion had experience in the French and Indian War during the 1750s. The Cherokee Indians he fought used the landscape to their advantage. They concealed themselves in the Carolina backwoods and mounted devastating ambushes. Two decades later, Marion would apply these tactics against the British.After the Battles of Lexington and Concord on April 19, 1775, the Provincial Congress voted to raise three regiments, commissioning Francis Marion a captain in the second. When he saw combat during the Battle of Fort Sullivan in June 1776, Marion acted valiantly. For much of the next three years, he remained at his fort, occupying time by trying to discipline his troops, whom he found to be a disorderly, drunken bunch insistent on showing up to roll call barefoot. In 1779, they joined the Siege of Savannah, which the Americans lost.

http://www.smithsonianmag.com/history-archaeology/biography/fox.html#ixzz28IDAT21v

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Francis MarionWith the American army in retreat, things looked bad in South Carolina. Francis Marion took command of a militia and had his first military success that August (1780), when he led 50 men in a raid against the British. Hiding in dense foliage, the unit attacked an enemy encampment from behind and rescued 150 American prisonershttp://www.smithsonianmag.com/history-archaeology/biography/fox.html#ixzz27eEVSMZW

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“The Swamp Fox”Though often outnumbered, Francis Marion's militia would continue to use guerilla tactics to surprise enemy regiments, with great success. Because the British never knew where Marion was or where he might strike, they had to divide their forces, weakening them. By needling the enemy and inspiring patriotism among the locals, Marion "helped make South Carolina an inhospitable place for the British. Marion and his followers played the role of David to the British Goliath.“In November of 1780, Marion earned the nickname he's remembered by today. British Lieutenant Colonel BanastreTarleton, informed of Marion's whereabouts by an escaped prisoner, chased the American militia for seven hours, covering some 26 miles. Marion escaped into a swamp, and Tarleton gave up, cursing, "As for this damned old fox, the Devil himself could not catch him." The story got around, and soon the locals—who loathed the British occupation—were cheering the Swamp Fox.Read more: http://www.smithsonianmag.com/history-archaeology/biography/fox.html#ixzz27eBsb7IN

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2) Apple has quietly created the world’s largest hedge fund worth $117 billion By Brad Reed | BGR News  Apple has quietly created the world’s largest hedge fund worth $117 billionApple (AAPL) is not only the most profitable company in the world, but it also now owns the world’s largest hedge fund as well. Zero Hedge reports that Braeburn Capital, a Nevada-based asset management corporation that Apple founded specifically to manage its cash, now has more than $117 billion in assets under management, making it even larger than hedge fund giant Bridgewater that currently has around $100 billion in assets under management. As Zero Hedge

 notes

, Apple has been very secretive about Braeburn’s investments and activities and has kept the company’s profile decidedly low since “Apple for now uses Braeburn primarily in its capacity to find legal tax loopholes all around the world and avoid paying taxes.” What’s more,

Zero Hedge says that Braeburn exists in a sort of legal black hole where it has no reporting requirements and thus isn’t obligated to disclose to anyone what it owns.

Sun Tzu “The Art of War”: “Warfare is based on deception. Attack the enemy where he is unprepared, and appear where you are unexpected.”

News story : Copyright BGR News 2012.

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What Do We Know About Apples Strengths and Weaknesses?Some widely known strengthsEnormous financial resourcesBrand recognitionHigh gross marginWhy is high gross margin a strength?Weaknesses?Highly dependent on one productHigh stock market valuationHow would a competitor exploit Apple’s market valuation?

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Business Strategy is QuantitativePaul Kennedy did a history of economic change and military conflict 1500-2000Battles can be won or lost with brilliant maneuversGerman generals especially effective because they were trained and allowed to adapt to field conditionsWars are ultimately a matter of resourcesBusinesses win or lose according to resources they are able to employWe will look at balance sheets and income statementsWhat are our competitors’ resources?What are our own resources? Potential resources?A strategic plan should allow flexibility to adapt to changing conditions

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The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty (Fred David)Strategy can be a formal planning process or informalIntuition is based on:Past experiencesJudgmentFeelings (often the ego leads to poor judgment)Intuition is useful for decision making in conditions of:Great uncertaintyLittle precedentHighly interrelated variables

Several plausible alternatives

Intuition and analysis complement each other

Integrating Intuition & Analysis

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Excerpts from Reuters, 15-10-2012(Reuters) - Renault and Nissan plan to step up cooperation and double annual savings from their car making alliance to 4 billion euros ($5.2 billion) in 2016, sources with knowledge of the plans said.Renault shares rose as much as 9.8 percent to 37.725 euros on the news.Carlos Ghosn, head of both carmakers, outlined the new goal at an internal presentation to Renault and Nissan managers, people who attended the Sept 25-26 meeting said. "Ghosn said we need to seek further synergies to get to double where we are today," an alliance executive said.In parallel with their operational savings push, Renault and Nissan are reviewing the cross shareholdings underpinning their 13-year-old alliance, people with knowledge of the matter said. Renault currently holds a 43.4 percent stake in its larger Japanese affiliate, which in turn owns 15 percent of Renault.The companies would not comment on savings goals or the "shifting pendulum of speculation about the alliance's corporate structure", a Renault-Nissan spokeswoman said."We seek more and more synergies every year," she added.To meet the new goal, the allied carmakers would centralize more activities under their joint holding company, Renault-Nissan BV, sources said.The Dutch-registered venture, which already runs some purchasing and logistics operations for both companies, will

extend into new markets

such as Russia and broaden its remit in

back-office functions such as information services, they added.

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Companies adapt and strategies evolveSome companies frequently commission strategic plansLarge bureaucratic organizations tend to put plans on a shelfPlans and strategies change, but the organization fails to executeOthers seize opportunities or create themExecutives (strategists) know their business – they keep a model of the business in their head – and monitor the environmentThey assess the environment for opportunities, then execute (new resources, regulations, markets, changing competitive landscape)

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How Wells Fargo became the Most Successful Bank Outside ChinaHighly analyticalRefused opportunities that seemed too riskyRetrenched when necessary (as part of strategy)Identified sound business opportunitiesAdapted to banking’s strategic inflection pointsExecuted flawlesslyOpportunities arose in 2008 crisisDid not rush into dealsWon the bidding for a huge distressed bankDeal gave the bank nationwide presence

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Struggling with changeWhat do you do if a gorilla moves in?What would a small coffee chain do after Starbucks moves in? (NY Times article “Struggling Against a Venti Starbucks Tide” 24-10-12)Go out of business?Ignore the change?Assess the situation?Most cases look at competition from the Starbucks perspectiveTry looking at how to survive or thrive among the gorillasStarbucks, Apple, Intel all have vulnerabilitiesLegal challenges, regulatory challenges, technological challengesSegments ignored or changing consumer preferencesTheir own high marginsAndy Grove famously said “Success breeds complacency. Complacency breeds failure.” and worried about threats from belowApple’s competitors grow in markets Apple will not serve (such as India)Niche strategies ‘fly under the radar’ of big companies

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For October 22ndGet a copy of the class materialScan David pages 74-89