Name: Arvin John Modino Strategic Management

ID No.: 2022121547 Spring 2023

2023 Spring CAU Strategic Management Second Review Exam (GMBA)

Part #1: Revisiting Week 1 to Week 3 Contents

Q1. Enron’s Demise and its Incentive Structure

Enron was very popular in the early 2000s, owing to its unexpectedly incredible financial performance at
the time. The stock price of the company skyrocketed. This, however, was a bluff because it was achieved
by internally manipulating the company's books to show faked financial success in order to attract new
shareholders or retain existing ones. However, the company's debts were ballooning, and earnings were
declining. The manipulated books assisted the company in masking its poor financial situation and
allowing it to survive at the time.

The company's manipulated financial books benefited Enron's executives greatly, and it was a ticking time
bomb. Pre-specified bonus conditions based on stock price growth resulted in executives being
significantly overpaid. This is one of the indicators used to discover Enron's anomaly. The bonuses were
so generous that they can be viewed as one of the reasons Enron may have manipulated its books. Many
financial analysts were skeptical at the time, until the disastrous discovery occurred. In other words, the
bonus was a key factor in revealing Enron's demise.

Furthermore, there is a link between the incentive system (or the distribution of bonuses) and the capital
market appetite. In terms of finance, if a company decides to give out bonuses, the goal is to keep the
stock price at a reasonable level, making it affordable to potential stock buyers. In the case of Enron, they
stipulated massive bonuses, mostly in favor of the executives only, awarding them millions of dollars
individually.
Q2. Graham Allison’s 3 Model in Business

Graham Allison’s 3 model is a famous model used to characterize how governmental decisions or policies
are made. However, the model can also be characterized in the corporate setting most especially that the
corporate playground nowadays is full of bureaucracies, even nepotism, which affects rational decision
making in business.

For example, let’s say I am the CEO of a food manufacturing company. It is I who decide whatever decisions
will be carried out in the company. From top to bottom of the company structure, all the decisions should
be consulted through me and as the main decision maker I should think and decide whether to approve
them. This is an example of Allison’s first model where decisions are rationally made unitarily by one
person or entity.

Second example. Let’s say I am the procurement head of the food manufacturing company this time. I
must order raw materials for a specific food product. The company’s product development and brand
department have a standard to have the raw materials be 99.99% organic and should not contain any
health hazardous preservatives as it is also a governmental regulation. There are several sellers of raw
materials that offer the raw material in cheaper price but do not guarantee the 99.99% organic
requirement. However, as a procurement head, I must minimize costs as well. As for me, I have no choice
but to compromise my goal and purchase what was informed by the product department. Then after
which, I will then choose for the lowest price among a set of sellers that still meet the requirement. This,
in the other hand, can be characterized by Allison’s 2nd model. Decisions are made after considering all
the SOP’s or all the pre-determined policies set by the company.

Lastly, for instance, this time I work in a start-up company that my friends and I have made. We are co-
owners of the business but have decided to have our own roles in the company. I was chosen as the CEO
and operations manager and the others were decided to be working for marketing and finance. Let’s say
we must decide from which company we must purchase our raw materials for a specific product. As a
startup, we still are not confident about our expertise as all of us are new in the industry. Hence, we must
sit together and brainstorm about it. The operations head should discuss the product, the marketing head
should discuss the brand, and the finance head should discuss the cost. All of us should bargain about all
these factors and make an ultimate decision as an output. This is a perfect example of Allison’s Model 3
in which decisions are made through compromising, coalition, and bargaining.

Part #2: Competitive Strategy

Q3: Choosing the Right Business VS Doing Business Right

In traditional management, it is taught that implementing the

“how to do” or doing the business right is an ideal thing to do.
It characterizes the set of actions carried out in the company
that are generally acceptable following the general standard
in the industry. In this way of thinking, businesses generally
just benchmark their processes from the other established
players to imitate their tactics for them to ensure that they
are doing the right process and decisions in the industry.
In the other hand, Michael Porter and his models proposes that “Choosing the Right Business” is more
vital than to that of the former. In Michael Porter’s models such as the Fiver Forces and his Generic
Strategy Models, he emphasized several factors that guide businesses in choosing the right business and
the way how to position the business in the competitive playground to gain competitive advantage amidst
the intensifying rivalry in the industry. In his proposition, we can imply that he puts emphasis on the
importance of being different or making a unique business before establishing it in a specific market. He
proposes that to gain advantage in the market, a business should first establish its appeal or a “wow factor”
that will set the business aside from other players to gain competitive advantage along the way.

For instance, I will be starting a new business myself. If I will be traditional, I will just start a business which
I know is profitable nowadays and just follow the industry ways. Just for example, opening a coffee shop.
But if I will apply Porter’s concept of “Choosing the Right Business”, I will then be critical about what’s
happening in the industry, do research, and I will try to conceptualize a business that is unique and that I
believe will have a competitive advantage in the industry. Just for instance, a flying coffee shop or a coffee
shop which coffee’s price are crazily cheap but still profitable.

If I am going to reconcile both mindsets, I think it is safe to say that “Choosing the Right Business” always
comes first before “Doing the Business Right”. Doing the right business makes it easier for businesses to
be profitable naturally as profitability is already embedded in the business itself, why? Because it is a
“right business”. Then after that, doing the business right will do its part in making the business stable and
live longer in the industry where it belongs. That I think is the proper order for these two mindsets.

Q4: Tesla E-Vehicle: 5 Forces Analysis

Elon Musk has been making noise these past few years. He has been into investing in products that
seem to attempt to change the future. Examples of these are SpaceX and Musk’s popular company,
Tesla. Tesla was established in an attempt to revolutionize the automobile industry by manufacturing
fully electrically operated cars. The concept is not new, but Tesla is the first one to successfully launch
the product in the industry with an impact.

In this part, I will discuss about Tesla and its industry through the Porter’s 5-forces model lens. Please
refer to below:
 Threat of New Entrants
Very Low
1. First Mover Advantage. Tesla’s launch of its electric
cars was phenomenal. It established a superior image in
the market immediately. Although Tesla is not the first
one to invent electric cars, the company successfully
established an image of a first mover, making it difficult
for new entrants to compete for a share in the market.
2. Very High Set-Up Cost. Electric cars require state-of-
the-art parts, specialized equipment and manpower to
manufacture. Hence, significantly high capitalization is
required which only few investors have the ability to
invest to.
Power of Buyers
High in the Present
1. For now, as the company is only focusing on a
niche, or on only those who can afford their
products, buyers have a high power. Since only a
few are only able to purchase Tesla’s products,
Tesla has to make efforts to expand its market by
proving its value relevant to its price. In addition,
buyers can easily choose cheaper options, which is
an indicator of buyer’s power.
Potentially Low in the Future
1. As global warming has been a continuous issue,
there may be a time in the future when the
government will restrict the use of fuel-operated
cars, making consumers have no choice but to
switch to electric cars despite its price (for only
those who can afford).
Threat of Substitute
Very High in the Present
1. Highly Priced and Cheaper Substitutes
Electric cars are very expensive that only few
people can afford. Although gas prices
significantly increase these days worldwide, it’s
still hard for consumers to switch from fuel-
operated cars to electrically operated cars
because of its luxurious price.
Potentially Low in the Future
1. Global Warming and Government Regulation
As the environment continues to deteriorate,
global warming has been felt by people these
days. Several organizations have been taking
initiatives and governmental regulations have
been taken to combat the effects of global
warming. With this trend, it’s not impossible that
the whole world may restrict the usage of fuel-
run vehicles in the future. This will make electric
cars superior in the automobile industry.
However, there is a possibility that a company
can create a cheaper substitute for this. For
instance, water-operated cars. Hence, Tesla’s
faith is still not guaranteed.
Power of Suppliers
Moderate to High
1. As electric cars are made with specialized parts
and equipment, suppliers may have a moderate
to high power to Tesla. Unless Tesla has decided
to backward integrate, supplier power remains.
Intensity of Rivalry
Very Low
1. The industry of Electric Cars remains desaturated
as of now. This is because of the high set-up cost
for the industry. Hence, this is not an issue for
Tesla as of the moment as they remain to be the
top player in the industry.
Q5. High-Tech Business means Big Profitable Business? – Implication of SCP Paradigm

Companies equipped with high-technological resources seem very appealing. In today’s business world,
it almost always a suggestion in a company to consider using high-tech devices or equipment to maximize
the production of products or even services for the benefit of achieving efficiency – produce the highest
output with minimal input and as quickly as possible. In fact, “Achieving efficiency is profitability” – most
probably be what high school Economics teachers will say. However, in the real business world, this is not
always necessarily true.

According to the SCP Paradigm, market structure limits the business in what it can only do (conduct) and
eventually determines its performance. In other words, businesses are only bound to follow some set of
standard actions in maintaining its position in the industry. Market structure is like the guiding light on
which business conducts are made. Without considering the market structure, business conducts can be
misaligned, and performance will be compromised, and so is its profitability.

That is why it does not necessarily mean that companies with high-tech capabilities can profit big time.
Using high-tech equipment without considering the market structure is like answering an exam question
without reading the instructions. It’s like you are answering the questions with all your might but
apparently the instruction only asked to answer only the first item of the exam. Just like this, using high-
tech resources might be an unnecessary thing to do that instead of achieving efficiency, it might cause
loss, inefficiency, and unnecessary costs as well.

For instance, I thought of a business which uses VR set to read books. But apparently, the market structure
says that 99.99% of readers would still love to read books in a traditional way. If in case I carried out this
idea without knowing this fact about the market structure, I’ll probably crying my ass out already
regretting my life decisions. Imagine spending hundreds of dollars knowing that business will be bad, it
will surely be painful, especially financially. This is what the implication of the SCP paradigm is. Even
though equipping your business with high-tech resources seems to be a brilliant idea, if the market
structure says NO, it’s really a NO.
Q6: Porter’s Five Forces vs. Chan Kim’s Blue Ocean Strategy

Porter’s five forces is more of an analysis of the industry to which each force is assessed to determine
whether a specific industry is worthy of penetrating or not. It can also be a guideline to challenge the
industry with new and breakthrough ideas to gain competitive advantage within the industry. Whereas
the Blue Ocean Strategy goes beyond that. This strategy doesn’t limit itself to an existing industry.
Instead, it sails all throughout the blue ocean and tries to find a new market to which a business can
dominate and be the king of its own island. Summary of their differences is as below:

Porter’s Five Forces Chan Kim’s Blue Ocean

1. Industry Framework
2. Model to assess existing markets to
penetrate.
3. Aims to join competition.
4. Markets are tested already. Hence,
industry knowledge is readily available.
1. Beyond industry framework
2. Strategy to assess existing markets to
create new markets.
3. Aims to be a one-man king of an
industry.
4. Attempts to create a new
market/industry. Hence, industry
knowledge is minimum to zero.
Uncertainties are prevalent.

Part #4: Generic Strategies

Q7: Ideas of Generic Strategies in Real Business

a. Cost Leadership – IKEA

Cost leadership is one of the generic strategies to
which firms gain competitive advantage by
minimizing cost of production while still providing
standard to maximum value to customers. Hence,
gaining advantageous profit than the other players
in the industry. One of the several cost leaders is
IKEA. The company continuously makes its
presence as one of the top home
furniture/amenity manufacturers in the world.
IKEA uses cost-leadership strategy to gain advantageous profit from competitors. Some of their
strategies include forward and backward integration. IKEA, in the long run, has eventually create
its own distribution centers and creates some of its own raw materials themselves. This allows
IKEA to eradicate supplier power in the cost of raw materials, and also for IKEA to control its price
for its customers as they sell their products themselves. In addition, IKEA sources it supplies
globally to find the least-costly raw materials for their products. These strategies have paved the
way for IKEA to be significantly profitable – getting a substantial share in the market (low-priced
products = more demand) while getting substantial profit from its cost leadership strategies.
 b. Differentiation Strategy – Starbucks
It’s undeniable that Starbucks Coffee has successfully
differentiated itself among all the players in the coffee
industry in the world up until now. Starbucks is actually
one of the pioneers of coffee shops that provides a “place”
for those who would want to have a conversation while
drinking a cup of coffee. This core concept has been
preserved by Starbucks up until now and it is very effective
for Starbucks in creating its own loyal customer base. Store
design, service, and menu offerings are standardized all
over the world. As you know, market adaptation sounds like a rational strategy when expanding
to other countries. But Starbucks chose to standardize. With this, you can obviously see that
Starbucks is doing a great job creating its brand. This differentiation strategy is obviously effective
as customers continuously patronize the coffee brand despite its expensive-priced coffees.

c. Focus Strategy – Cebu Pacific Airline (Philippines)

Focus Strategy, in short, is being smartly not greedy. Several businesses tend to target all the
market segments with an intention similar to “the more entries, the more chances of winning”
idea. I mean this idea is actually rational. But Focus Strategy believes that focusing on a market
segment is also good because with this strategy, monitoring the market is easy and more
focused, responding to the segment’s needs more quickly and accurately. One good example of
a business using Focus Strategy is Cebu Pacific Airlines in the Philippines. The airline solely
targets the mass lower to middle class i ndividuals in the country. They continuously provide
significantly cheaper airfare than the other airlines in the Philippines. The airline also grants
many discounts and promotions for the customers. Service is not that superior as compared to
others, an indicator that they only provide value relevant to their target mass market.

Q8: Incumbent Player with Wide Business Scope and New Entrant’s Focus Strategy

Existing players with an established name in the industry are generally hard to compete with for a share
in the market. These players are generally one of the barriers for new entrants to enter an industry.
However, the case is a little bit different for industries in which markets are broad. For instance,
industries such as entertainment, fashion, and food. The markets for these industries are very broad
that marketing strategies can be made universal to several market segments. With these, new entrants
has an opportunity to take advantage of the markets that are not targeted enough and find a unique
marketing proposition in that segment. It’s like an opening door for a new entrant to do business and
use focus strategy to penetrate the industry.

For instance, incumbent broadcasting companies in the US such as ABC, NBC and CBS had dominated
the broadcasting industry for several years before. These broadcasting networks are in fact considered
to be the “Big Three” of American broadcasting. They’ve been providing American people contents as
early as 1950’s. The “Big Three” has dominated the industry for almost several decades until Fox joined
the picture. Fox has challenged the big three by competing with ratings at primetime slots. Although Fox
do not offer programs in all of the time slots, it focused on the most important timeslot to make itself
known to the public. The strategy turned out to be effective as Fox had led the primetime ratings before
and attracted an exclusive market base of viewers ages 18 – 49 years old. This proves that it’s actually an
effective tactic to start penetrating the industry by market portions and then gradually expand to other
segments slowly rather than competing with the existing players face-to-face. I see it as a good strategy
as existing players did not see Fox as a competitive threat right away because the company started in a
small portion of the market, hence, competitors weren’t able to counteract with Fox’s business
strategies.

Part #5: Advantage, Competence, and Capabilities

Q9. Core Competence in Business

a. Samsung Electronics in the Foundry Business

Samsung Electronics strengthening its position in the semi-conductor industry sounds really good
to me. Samsung Electronics is in fact one of the top players for this industry and strengthening its
position in the industry will open so many opportunities to all of Samsung’s business units. As we
all know, Samsung core competencies are its R&D capabilities, manufacturing expertise and
supply chain management. Having to strengthen its position in the semiconductor industry will
open so many opportunities to the other business units of Samsung, made even more possible by
the core competencies of Samsung Electronics.

For instance, let’s say Samsung Electronics dominates the semi-conductor industry, a primary raw
material for electronic products. Let’s say the company was able to obtain price leadership for its
semiconductors. There is a possibility that Samsung’s electronic competitors might consider
purchasing semiconductors from Samsung. This means an advantage in profit among it
competitors. This is also advantageous in t he electronic products manufacturing side of Samsung
 as they’re able to backward integrate, eliminating subcontractor and transportation costs from
its primary raw material, which is semiconductors.

b. Dyson for Electronic Vehicles

I personally think this is not a good idea. Dyson’s
identity is embedded in its vacuum technology
which is greatly unrelated to vehicles. Its core
competencies strongly rely on personal and home
care technologies. Although it is not bad to venture
to a new market, venturing to a very unrelated
business is a huge risk. Not to mention that the
current positioning of the company can harm the
image of the venture. I mean, can you imagine a hair dryer manufacturer making an electronic
car? Unless the car is like a mobile salon, on which I can have my hair done after a long road trip,
I will probably not purchase a car from them. Issues could be safety and image. Like I cannot brag
to my friends that I bought a car from Dyson. I might as well buy electronic cars from Tesla instead.

c. Saudi Arabia’s Neom City

The project seems really extravagant and costly.
In my personal opinion, this is actually a good
move for the country. Saudi Arabia’s core
competency strongly lies on its oil reserves. This
is where the country gets its riches mostly. This is
a good move for the country as the project can be
an additional source of income for the country,
making it a good investment for tourism. The
country, in fact, is actually not popular for
tourism. If the project became successful, the
country will most probably experience a spike
increase in its tourism, which is a good thing.

Q10. Samsung’s Value Chain Analysis

It’s not a surprise that Samsung’s smartphone business has been considered the leader for the
smartphone industry for several years. Although its close competitor, Apple, has a strong
branding advantage, Samsung was able to lead the industry by focusing on all the aspects of its
value chain from supplier side up to its distribution channel’s side. Here, I will analyze the value
chain that Samsung has to know how it’s able to be the industry leader for smartphones.

Inbound and Outbound Logistics

Samsung has a brilliant supply chain. The company has significantly numerous supply chain
stations making its supply traffic smooth and free from interruption. Samsung’s supply stations
are located in almost all parts of the world, assisting operations in each manufacturing plant
with minimal to zero idle. Same to Samsung’s outbound logistics. The company had established
principal subsidiaries such as SELC and Samsung SDC to support demand fulfillment
management in several parts of the world. Overall, the efficiency that Samsung has in its
logistics has made it easy for the company to fulfill orders on time, preventing loss in sales and
any idle loss brought by delay in supply and finished goods’ traffic.

Manufacturing and Operations

Samsung invested in making substantial number of manufacturing plants all over the world. The
company has positioned the plants to locations where demand is high making it quicker for
Samsung to respond to demand. The company is also investing in R&D, finding more room for
product development and efficiency in operations.

Marketing, Sales, and After Sale Service

Samsung has been competing with Apple in projecting a superior image from each other.
Samsung’s marketing strategy relies more on digital marketing to promote its smartphones. The
company also established numerous direct sales centers to which customers can go to purchase
Samsung at their convenience. After-sale service is also available for customers. Samsung
provides warrantees and repair service providing more value for customers.

Value Chain Vs. Core Competence

Value Chain and Core Competence are different, but they are related. You can describe the
value chain as the positive result of the company’s set of activities which goes beyond what is
expected from the normal operations of the company. It’s the value creation along the process.
Core competence can be considered one of the value chains, however, it is a unique value that
the company has created comparable to its competitors. This unique value should be hard to
imitate to be considered as a core competency. For instance, Apple can also have as good
marketing and sales capabilities as Samsung has, but they don’t have the flawless supply chain
capabilities that Samsung has in its bag. This is one of Samsung’s core competencies against
Apple and against other players of the industry.

Competitive Advantage linked to Resource.

No doubt that competitive advantage leads the way for companies as weapons in playing games
in the competitive playground of business. But what lies behind this competitive advantage?
What is it that the company possess to achieve this advantage? The answer is simple – resource.
I once heard a saying – “What you own, is what you get”. This is exactly the logic behind Porter’s
students’ reformulation of competitive advantage that they link to resource. Their idea is that
the internal resources of the company are the main reason why a company has its competitive
advantage in the first place. If you may ask me what these resources are, it can be both tangible
and intangible. Tangible resources include concrete resources such as new technologies that
improve a company’s productivity, a secret recipe of a restaurant, or even robust infrastructure.
Intangible resources, on the other hand, include exclusive knowledge, expertise, or skills. If you
look at them closely, these resources (tangible or intangible) can be sources of competitive
advantage of a business. They’re like weapons that a company uses to attack competitors or
defend itself from any external attacks. This, in a nutshell, is what Porter’s students’ logic behind
reforming competitive advantage to resource is.
Q11: Amazon’s Strategy through the lens of Organizational Capabilities

When you hear something about global online shopping, Amazon

is for sure one of the companies that someone would say. Indeed,
the company is one of the successful pioneers of the online
shopping industry. Amazon has many internal capabilities that
made it possible for them to be an industry leader. Example
would be its demand fulfillment, infrastructure, and logistics
capabilities. The company’s physical resources are so good, and
its logistics processes are seamless that they can fulfill almost all
orders on time and with maximum care. In fact, most of
Amazon’s fulfillment distribution centers are located near
airports. This strategic location is a good way to improve
efficiency and deliberately lessen the cost of operation which can
result in reduced prices for customers.

Another capability that Amazon possesses is its technological capability. The company has technological
infrastructure to make its operations more automated, improving more on efficiency and preventing
backlogs and flaws in its operation.

The third capability is its after-sale service capability. Amazon is known in investing in its human capital to
cater more on customer service, handling complaints and assisting customers in using their online
shopping platform. Amazon has created hubs exclusively for customer service in some parts of the world.
As customer inquiry traffic is a huge concern for Amazon, the company’s strategy to create hubs for
customer service is a huge strategic advantage for Amazon on which it is hard for competitors to imitate,
financially wise.

Next is its information technology capability. Amazon maps consumer behavior using big data analytics.
Big Data has actually been adopted by the company to the point where it can now promote this as a new
service offering. Anybody who has done any shopping on Amazon has come across a list of products that
are suggested based on browsing history and mapping between past purchases and future purchases that
are expected to be made. Because of this, Amazon is now able to sense and anticipate what customers
desire and adjust its methods as necessary.

Last but not least is its financial capabilities. The company has a strong cash flow advantage that financial
advantages can be transferred to customers as well. With their good financial standing, it was able to offer
consumers longer payment terms of almost a month, to which consumers will find very attractive.

Q12: Strengths and Weaknesses ahead of Opportunity and Threat

Logic is quite simple. Strategies considering internal capabilities and incapabilities (strengths &
weaknesses) ahead of external factors are usually done by businesses who were able to make
breakthrough inventions or newly discovered technology to provide value elsewhere. The catch is, newly
discovered inventions were made through the internal capabilities of the company. For example, Samsung
has an R&D facility in which new product development is being done. With this, the company is capable
of inventing something that will change the world. If you’re going to look at it, value is created from within
and was not conceptualized outside. Looking further, you can predict that once a product is developed
(means) by Samsung, it can create a new market (ways) towards more profitability (ends).

In the other hand, the flipped version of this approach is when strategy is made by looking at the external
factors (opportunities & threats) of the business. Strategic models such as Porter’s Five Forces are usually
utilized in this approach. Let me use Samsung again as an example. For example, Samsung has the
intention to enter the entertainment industry (just a wild example). It is just rational for Samsung to
explore and study the industry first before entering it (unless they have internal capabilities for
entertainment industry that they’re hiding all these years). Porter’s forces model is one of the models that
they can use to do this. Then strategies will be carried out after analyzing the industry.

Nowadays, these ideas are changed with the shift in structure in the business eco-systems. These
approaches are actually combined together nowadays to form more accurate and rational strategies in
the business eco-systems. In the dynamic business playground nowadays, things are changing rapidly.
With the emergence of technological advancement and breakthrough discoveries, companies are now
trying to exhaust all the opportunities and imitate their competitors’ internal capabilities as much as they
can. That’s why internal and external approaches of strategic decision making are carried out to respond
to the uncertain and fast-changing business environment of today.

--End--