Week 1: Lecture

- Strategic sweet spot:

- Meet customer needs in a way rivals cannot
- Sweet spot: between customer needs and company abailties
- Value stick:
- Does this increase my WTP or decrease my WTS
- NO to both then proposal has no value

- Hierarchy of company statements:

- Purpose, Mission, Values, Vision, Strat, Capabilities, Systems

- SWOT
- SW (Resource Based View) → The Firm
- Goals & values
- Resources & capabilities
- Structure & systems
- OT (Industrual Org View)
- Competitors
- Customers
- Suppliers

- Strategy answers two questions:

1) Where should we operate
2) How should we operate
***** strategy can be viewed as building defenses against the competitive forces or as finding
a posotin in an industy where the forces are the weakest

→ 5 steps of business lifecycle framework

1) Trigger HU
2) Launch HU
3) Growth HU
4) Maturity LU
5) Decline or Renewel LU
- S curve represents a business lifecycle for successful business
- S curve also reprs produ lifecycle, comp lifecycle, tech, etc.
- Manage current business to peak efficiency
- Identify business practices
- Generate break through ideas and convert them

→ Horizon’s Growth Model

- Mature organizations rely on incremental innovations
- High growth businesses that rely on new products
- Emerging Business Opportunities (EBOs)

→ 3 types of cognitive bias:

 - Confirmation Bias: seeking evidence that confirms our beleiefs
- Sampling Bias: received 500 responses and found people LOVE resp to surveys
- Brilliance Bias: tendendcy to think of brilliance as male trait

- Education for judgement: refers to development of critical thinking skills & capacity to
evaluate info, weight dif pers, and form indep judgements
- VITAL for self-awarness and reflection about bias & assumptions

- Translate theory into practice:

- Knowing (Intellec Cap) → Being (Psychological Cap) → Doing (Social Cap)

- Dual process theory:

- Provides an account of how though can arise in two different ways or due to two
different processes

- Key Success Factors

- What customers want (Analysis of demand- Who are they, What they want?)
- How firm services (Analysis of competition- What drives comp, how intense?)

→ 4 components of framework for interpersonal development

1) Humble Inquiry
2) Objective Description
3) Perspective Taking
4) Building Trusting Relationships

Week 1: Reading

- Strategy is used to answer:

1) How we should compete
2) Where we should compete

- Strategies purpose is to create a competitive advantage that generates superior financial

returns
- A firm must:
1) Undertstand business landscape
2) Choice of position on the landscape
- Position dictates financial returns

- A good strategy balances consistencies of external environment and internal activities

- Implementing certain processes isn’t a strategy; it may help support your competitive
advantage and inturn the strategy but it is not a strategy itself
- Porter’s 5 forces focus on economic theory & competition (sixth force: complement)
- All these forces surround “industry competitors: rivlary amongst firms’
- These forces infleunce % of an industry
- Understanding them helps you identify a way & position to product within industry
- These threats are NOT STATIC: thats why threats to sustainability exist

1) Threat of new entants (most important determinant of profitability)

- Firm must benefit from economies of scale, strong brand identity, and
proprietary knowledge to decrease threat

2) Bargainng power of suppliers

- Powerful suppliers group can drive up cost so firm can’t pass cost to
customer
- Factors affecting (2):
- Supplier concentration
- Industry switching costs
- Differentiated products
- Fewer/ no subs for supplier products
- Credible threat of forward integration

3) Bargaining power of buyers

- Industry’s buyers are powerful if they are free to direct their purchases
elsewhere
- When a small price reduction has a large impact on the quantity the
supplier is willing to provide, cust has less room to negotiate

4) Threat of Sub Products

- Place a ceiling on industry’s ability to increase prices and grow
- Sub compeites for industry profit from OUTSIDE industry

5) Intensity of Rivalry
- If competition manifests into something aggressive, everyone’s profits suffer

6) Sixth Force: complements

- Complement concentration, relative switching cost, influence on demand,
asymmetric threats (automobile mfg will enter bat business than bat bus
enteres auto bus)

- 2 main types of business models:

1) Value Proposition → differentiation and low cost
- Differentiated firms goal is to increase price a lot while allowing costs to
increase only a little
- Low costs goal is to decrease price below competition and drive relative cost
position far down; attract price conscious customers
 2) Target Market → broad scope or narrow scope

3) Can have a dual model: both driving costs below industry average and increase WTP

- The ultimate goal: max the wedge between customers WTP and SOP (supplier opp cost:
smallest a supplier will accept for services required to produce a product)
- A firm that demands and sustains a larger wedge than peers = competitive advantage

- Business model determines which tactics are available to the firm

- Must be internally and externally consistent
- Finiding & occupying these points on the landscape = strategic positioning

- A successful stratengy is one that can create a competitive advantage for a company &
requires a set of choices that show internal and external consistency

- ACID TEST: if a firm disappared, would it easily be replaced → “no” firm has created
unique value (GOOD) → helps understand the added value

- To position a firm for success:

1) Different target markets
2) Different business models
3) Different positioning & new target market
4) Different business landscapes

WEEK 2: Lecture Notes

- Theory: statements predicting which actions elad to what result & why
- If we do X, then Y will happen

- General Environment Analysis

- Demographic, Economic, Sociocultural, Global, Technological, Political/
Legal

- Industry Analysis
- Suppliers, Sub Prod, Compeltements, Potential Entrants & Rivalry Among
Firm
- To approach IA: use the scientific method (identify issue, make hypothesis,
analysis for hypothesis)

- To conduct an IA:
1) Define (which other comp would a cust go to, which comp reactions when
comp lowers price of a prod)
 2) Identify the players (market participants: entrants, suppliers, cust, produc of
subs)
3) Analyze player’s influence on profitability
4) Test the analysis (compare prediction with profitability)
5) Respond (develop a way to deal with industry env)
6) Change (decide on response required according to factors affecting $)

- Industry: collection of companies making the same product

- Market: set of transaction in which similar products are sold to similar cust
- Positioning: process where firm establishes unique position in a market segment relative to
competing firms
- Take a position (find a market segment) where you can fend off threats from players
in the industry

WEEK 2: Reading
- Industry analysis: needed for strategy formulation because it helps a copmany understand
how its industry structure influences profits
- Strategy are choices that position a firm to be profitable → industry analysis helps
understand economic forces

- Barriers to Entry:
- Supply- side economies of scale: company’s cost per unit dec as quant supp inc
- Spread FC over more units, > efficiency, larger scale (gives high vol firms a
cost advantage)

- Demand- side benefits of scale: network effects (value a buyer gets from a product
increases as more people buy the prod) (E-Bay)

- Customer switching costs: if customer must incur costs to switch suppliers, reduces
incentive to switch

- Captial requirements: $1B investment vs $100k investment

- Incumbency advantages: “the first company”

- Restrictive gov policy
- Unequal access to dist channels/ supplier networks
- High barriers to exit

- Bargaining power: influences price

- Price sensitivity: influences quantity

- Co-opetition: combo of cooperation (to build a pie) & competition (to earn a pie)

- Principal app of industry analysis is:

- Developing a way to profit within industry environment in two ways:
1) Finding or creating an attractive environment
2) Competitive advantage
WEEK 3: LEC NOTES
- Competitive advantage: ability to create & sustain a unique position in industry that enables
it to outperform competitors for prolonged times
- Added value: max value created by all partocipats in a transaction minus max value created
without the firm
- Unrestricted bargiangin: amount of value a firm can claim cannot exceed added value

- Internal analysis: helps firm understand their competitive advantage that can be achieved &
value chani activities to create value
- Firm increases added value by widening the bar between WTP and SOC/ WTS
- Wider wedge than rival= competitive advantage

- 3 types of competitiv advantages:

1) Differentiation strategy: finding a way to raise WTP
2) Low- Cost Strategy: finding a way to reduce costs while reducing WTP only a little
3) Dual Advantage strategy: finding a way to raise WTP while lowering

- VRIO Anlaysis Framework

- Value: can the resources add value by exploiting or mitigating trends?
- Rarity: if a resource is rare, competitors cannot easily acquire it
- Imitability: if a resource is difficult to imitate, there may be comp adv
- Organization: ability of an org to epxloit resource or capability

- Industral organization view (IO) looks at compet offerings

- Resource based view (RBV) looked at company’s capaibilitys

- Value Chain Choices: firm’s choice about how to configure value chain creates competitive
advantage; highlights what a firm does differently
- Diamond - E Framework: Organization, Mgmt Preferences, Resources (VRIO), Strategy,
External Env

- Value Chain Activities Steps:

1) Catalog Acticities (Value Chain)
- Identify activities a firm does dif from comp
2) Use Activities to Analyze Relative Costs
- Analyze activities & cost drivers in terms of their impact on WTP relative to
comp
- Helps to know if they inc or dec cost of an act & helps est comp costs
3) Use Activities to Analyze
- If customers differ in their preferences, try segmenting market to
implementing mass cust.

4) Explore Options & Make Choices

 - Horizontal Differentiation: when cust rank product differently
- Vertical Differentiation: when cust agree on which prod is better but diffeer in how much
they’re WTP

- 3 parts of the value chain:

- Activities
- Competitive Advantage
- Set of Choices

- 4 support activities in the value chain:

- Firm Infrasturuce
- HR Mgmt
- Tech Dev
- Procurement

- 5 primary activities that support value chain

- Inbound logistics
- Operations
- Outstand logistics
- Marketing & sales
- After - sales service

- Total Value: difference between cust WTP and suppliers opp cost (WTS)
- Focal Firm value captured: diff between negotiated price and the cost
- Cust value captured: diff between WTP and price
- Suppliers value captured: diff between cost and _____

- Operative Effectivness: assimiliating, attaining & extending best practices (doing things
better) → validaitng and exercising

- Zero Sum Competition: a race no one can win (aim to be #1): serve the best customer with
the best practice; competitive by imitation
- Firm with a successful platform must think beyond zero sum outcome & find a way
to cooperate with other players
- Positive Sum Competitoin: earn higher returns, focus on profits, meet the diverse needs of
target customers, competpte by innovation

WEEK 3 READING

- 2 themes for compettive advantage (comp adv= having added value)

1) Acid Test
2) All of a firms activities must act in harmony for comp adv to rise
- Competitive advantage requirews a large gap between a customers WTP and company’s cost

- Two ways to each comp advatnatage:

1) Raise custom WTP w/o increase SOC
2) Reduce SOC w/o sacrifiting WTP
 -

WEEK 4 LEC

- Components of strategy:
- Position
- Objectves
- Value proposition
- Core Acticities
- Strategic Choice

- Sources of competitive advantage

- Cost advantage: look at all functions to decrease costs
- Differentiation Advantage: upscale firms aim to increase WTP by promoting
benefits
- Emphaize on branding, advertising, design, service, quality

- Business level strategy:

- Action plan
- Describes how firm will compete in chosen industry or market segment

- Cost leadership strategy:

- Firm configures activities to produce goods to service at the loewrs cost
- Scale efficient plants, design for mfg
- Control of OH and R&D + outsourcing

- Porter’s Generic Strategy

- Low Cost Differentiation

Industry Wide Cost Leadership Differentiation

Single Segment Focus

- 7 drivers of cost advantage

- Economies of scale: specialization
- Economies of learning: increased individual skills
- Production techniques: process innovation
- Product design: design for manufacture
- Input costs: location advantages & bargaining power
- Capacityt uilization: ratio of FC to VC & fast + flexible capacity adjustement
- Residuation efficiency: organizational slack
 - Economies of scale:
- Cost per unit of output decreases as the units of output per period increases
- As the companies grow, they gain a cost advantage
- Efficiency in production

- Economies of Scope
- Production of one good reduces the cost of producing some other related goods
- Cost to produce a product will decline as the variety of mfg products increases

WEEK 4 READING

WEEK 5 LEC
- Cross the Chasm
- Adaption of innovation-adoption model
- Difficusion of innovations theory

- Conceptual Framework of Entreprenuarial Process:

- Trigger (rsource push, desire to start) → Venture Idea Generatoin → Venture Opp
Dev & Expoloitaiton

- 4 types of integrated cost leadership / differentiation

1) Cost leadership (Cost & Broad target)
2) Diffrentation (Uniqueness & Broad target)
3) Focused cost leadership (Narrow target & cost)
4) Focused differentiation (Narrow target & uniqueness)

- Value Stick
- Customer Delight (WTP → Cust Price)
- Firm Margin (Cust Price → comepsation/ supplier price)
- Employee Satifsavtion & Supplier Surplus (compnenation/ supplier price → WTS)

- Differentiation advantage influence value stick → if a firm has an advantage they can raise
their price relative to another firm & raise WTS
- Customer price (WTP) increases
 - Compensation/ supplier price increases

- Positioning: firm establishes a unique position in a market segment relative to competing

firms
- Positioning map: visual representation that helps analyze the positioning of products,
services
- Helps identify:
- Opportunities for differentiation
- Assess the strengths and weaknesses of offerings

FOR ASPRIN:

More Side Effects

Less Effective More Effective

Less Side Effectives

- Competitive Advantage: Ability to create and sustain a unique position in industry to

outperofm competitors

- 6 components when value porpositon and positioning statement are combined

1) Target
2) Segments
3) Brand
4) Category
5) Distcintion
6) Proof

- Oringinal product-oriented systems (tends to fail so we use value delivery system):

- Create product
- Make product
- Sell product

- Market pull innovation: uxser centrered & better utility (may not produce break through
innovoations)
- Design-driven innovation: design push & better meaning (manages innovation in a way that
produce new products and services that customers dont expect but eventually love - prod
breakthrough innovations)

WEEK 6 LEC

- Differnetiaition strategy: firms following this strategy attempt to convince customers to pay
a premium price for their goods/ services by providing them unique & desirable features
 - TO BE SUCCESSFUL: communicate the values of these features to potentials
customers

- ACCORDING TO PORTER:
- Firm competes based on uniqueness rather than price while continuing to
seek to attract a broad market

- Key advantage of differentiation:

- Creates ability to obtain premium prices from customers
- Strong profit margins → dont need large consumer base
- Buyer loyalty → less price sensitive
- Creates benefit to threat of potential entrants: brand loyalty a customer feels
towards differentiation product makes it hard for new entratns to lure customers

- Key disadvantage of differentiation:

- Less expensive time ssatsify price sensitive buyers
- Imitations may streal customers (KNOCK OFF)
- Customres may not be willing to pay extra for the differentiation features
(NATUICA)

- Value creation opp:

- Find ways to increase customer deslight, employee satisfaction, and supplier surplus
- Expand total amount of value they create & position themselves for financial
success

- Value capture (by the firm)

- FIRM MARGIN
- Value capture (everyone inv in trans)
- CUST DELIGHT
- FIRM MARGIN
- EMP SATISFACTION
- SUPP SURPLUS

- Value created by the firm: how big is the pue & what would make the pie bigger
- Value captured by the firm: between price and cost (rev): how will we divide the
pie & am I getting my fair share or more than my fair share

- Feedback loop: loops the output of a system back into inputs

- Output = margin (value)
- Input= inbound logistics, operations, outbound logistics, marketing & sales, after sales service
**** reinvest market into input with the loop

- Strategic Intersection: situatinos in which the business model of one firma effects
performance of other firms
- Strategic interactions: business model of each firm affects the performance of the other firms
 - Include more than a competitive rivalry; encompass suppliers, cust, and
complemenotors

- 4 types of strategic interactions:

1) Value Creation & Competition (innovator introduce new outrigger with proprietary
production methods that are a secret → patent wars)
2) Value Capture & Competition (rival boatbuuilders compete for customers through
oppressive pricing → fight for cust)
3) Cooperation & Value Creation ( innovator & sailmaker collaborate to develop the
lateen sail for a new trigger)
4) Cooperation & Value Capture (rival boatbuilders work together to drive down woord
prices by negotiating & buying as a group → collusive agreements on price)
**** a firm’s place in its ecosystem must be viewed holistically & dynamically (given relationship
may be manifested in more than one quadrant in matrix)
**** negither purpely win-lose nor purley win-win

- Competitive interaction: how might others shrink the pie or my share of it?
- Cooperative interaction: how might I work with others to make the bie, or my share
of it bigger (can be competitive)

- Co-opetition: simulatnous competition and cooperation between firms

- 3 elements of strategic internaction:

1) Interpdenendeinces: exact bounds when the business model of on firm touches the
business model of another firm (what choices can each player make & what are
consequences of them)
2) Player Analysis: how does each player see its word and choices
- What is the other players POV on potential choices
- Will this POV lead to a particular choice?
3) Game Theory: economic outcomes of various scenarios and how they affect player’s
choices
- Predicted on rational, profit-max decisions by players
- 3 elements: players, actions, and payoffs
- Dominant strategy: rational choice w better payoff no matter other
players choice

**** understanding business models and their interpdenednices may determine what game is most
likely to be played (competitive, cooperative, or both)

- Porter’s Inegrate Framework for Player Status

What the other player is doing & can do What drives the other player
- Current Strategy - Future Goals
- Capabilities - Assumptions

- 3 characteristics of a good business model

1) aligned with company goals
2) self- reinforcing
 3) robust

- Bounded rationality: concept regarding decisions → making & how we make them in the
real world (rational decision making has limits)
- Instead of optimizing humans follow: satisfying → satisfy and success

- Process of decision making under uncertainty: real world → avoid catssrophic consequences
→ heuristics → satisfy and suffice

WEEK 6 READING