NEW YORK UNIVERSITY

Leonard N. Stern School of Business

Business Strategy Analysis B01.1101

Summer 2002 Prof. Robert Lamb B01.1101.B6 Room 7-53 KMEC May 28-June 6. Office Hours: Wed/Thurs 4-5pm Tisch UC-65 Tel: 998-0231 Fax: 995-4235 USEFUL RESEARCH SOURCES Email: rlamb@stern.nyu.edu URL:http//www.stern.nyu.edu/mgt/courses/b1101/lamb Teaching Assistant: Ana Paula Mast Tel: 201-626-4724 Email: apm232 @stern.nyu.edu Office Hours: Or by appointment Course Description Stern students asked for shorter format courses to help them complete their MBA degrees faster. We heard you. This is a compressed course format because of your work schedule. Yet, every business strategy subject & case we analyze may be critical in your career because business strategy concepts are powerful and they’re in the news every day. We only meet on five days for six separate classes. Before our class starts, please buy the two books at the bookstore. If possible, please, read p. 26 to 45 in the Ghemawat book, Strategy and the Business Landscape for our 1st class. This course provides students with the concepts and tools required to devise strategies that enable the business to create superior value for chosen customers and to capture a sufficient share of that value in order to create an economic profit on its investment. The course focuses on the gaining of competitive advantages at the product/market level. The course builds a model of competitive advantage, applies it to the competitive marketplace, and identifies the key sources by which firms can gain competitive advantage. It provides the basic set of tools that enable students to analyze and define the competitive situation at the product/market level, to delineate the strategic options open to the firm to create or retain competitive advantage. Students evaluate those options from several perspectives: strategic, financial, technological, legal and organizational, for business strategy is multi-dimensional.

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This course is built on several key arguments: 1. The first argument is based on the understanding of competitive strategy in battle and high

stakes games in which the outcome is highly valued. The main argument in this theory is that one does not play such a game 1) unless one has a competitive advantage which creates a positive probability of winning and; 2) gains from winning must out weigh possible losses.

. 2. The second argument says that marketplace exchange creates value. In this context, the

objective of business strategy is to be able to create and capture value through exchange sufficient to earn an economic return on invested capital—the amount one bets on the game.

3. The third argument says that in competitive markets, firms compete to create superior value

for customers as that value is defined and perceived by those customers. 4. The fourth argument says that competitive markets are efficient in the long run and that to

create economic profits a firm must have an economic advantage versus competitors in creating that value. Competitive advantage, whatever its source in the firm’s value chain, must have its effect at the product/market level. Competitive advantage may be transient. Sustainable advantage requires a deeper understanding of core competencies.

5. The fifth argument says that the firm has choices about 1) the exact value proposition to be

offered, 2) the market segments and customer groupings it chooses to serve, 3) the position it will occupy in an industry value chain, 4) the way it configures its value chain, and 5) the ways in which it organizes its activities.

6. Our business environment is becoming increasingly turbulent, in which the outcomes are

interdependent on the choices made by others. In such dynamic/interdependent markets, it is not possible to "go it alone". A firm often must collaborate with others in order to compete in the marketplace.

7. The processes by which competitive advantage is achieved are varied and are more often

opportunistic, serendipitous, and ill-defined than formal and planned because of the limits to human comprehension, influences of competitive actions or shifts in the larger environment.

8. This course prepares students with sets of tools to analyze strategic situations and to make

strategic recommendations. Students learn the organizational issues within which such strategy decisions are made in the Management of Organizations course. Lastly, this course assumes that the strategic recommendations must be capable of being executed as described.

Text and Other Class Materials Ghemawat, Strategy and the Business Environment. Pearson Publishing Solutions Custom Edition, 2001. (Ghemawat) Business Strategy Analysis Custom Readings and Cases, Pearson Publishing Solutions Custom Edition 2001 (BSA Readings) Both books Available in Book Store

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Session/Date Topic Readings 1. 6/24 PM BSA Course A Theory of

Competitive Advantage Value Creation Value Capture Formulate Comp. Strategy

BSA Reading 1 Ghemawat Chapter 2 BSA Reading 2

2. 6/26 PM Define Competitive Situation

Create Superior Value Value Map

Ghemawat, Chapter 3 p.49-59 BSA Readings 3 E*Trade & Toyota Examples Using the Value Map

3. 6/29AM Retailing: Wal*Mart vs eBay

Technology = Source of Value & Network Economics 7 Sources of Advantage

Wal-Mart Case eBay handout BSA Readings 5 Ghemawat, Chapter 3.p.60-74

4. 6/29 PM

Define Intel vs AMD Situation Superior Value -Operations & Cost Structure Anticipating Competitive and Cooperative Dynamics

Group Case Intel v. AMD Research Reports in Investex BSA Reading 4 Ghemewat, Chapter 4

` 5. 7/1 PM Browser Wars Analysis

Competition & Cooperation Competing on Technology And Operations Barco vs. SONY case

Case Browser Wars Analysis Handout BSA Review Ch 5. Read Ch 6 Barco vs. SONY

6. 7/3 PM

Dell Online Case Analysis Review of Course for Exam Take Home Final Exam Handed Out at end of Class

Dell Online Case Analysis M. Dell “Virtual Integration” 2 Page Individual Paper Due Key Concepts in Course Take Home Exam hard copy Due July 12, 6:00 PM

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Grading will be based on the following: 1) Final Take Home Exam 30% 2) Intel/AMD Case (Group Paper) 30% 3) Dell Computer (Group Paper) 30% 4) Class Participation 10% Total 100%

Session Objectives, Readings, & Assignments Session 1. a: What is Business Strategy? A Theory of Competitive Advantage In this session, you will learn: 1 A Roadmap of The Key Business Strategy Concepts For This Course. 2. Why Must Business Strategy Today be Dynamic, Not Static? 3. A multi-dimensional perspective is vital in Business Strategy: It integrates most other courses. 4. Advantages of First Mover, Fast Follower, Using Strength Against Weakness. 5. Pros and Cons of Defense & Attack as Strategic Alternatives. Military Strategy and Business. 6. Use insights from military strategy, game theory & bio-evolution for competitive advantage. Read: BSA Reading 1. Question: What are the pros & cons of the war metaphor for strategy? Does it apply to: Coke vs. Pepsi; Boeing vs. Airbus; Charles Schwab vs. Merrill? Session 1. b. Value Creation & Capture of Value: Forces Impacting Industry Competition 1. How superior value creation is the objective of marketplace exchange competition. 2. How your business can create more value & capture share of that value for the firm. 3. How to analyze an industry value chain and your firm’s place in that chain. 4. Use the five forces model to analyze industries and markets for their profit potential. 5. To focus firm resources on attractive segments of an industry to gain competitive advantage. 6. How to identify a firm’s sources of competitive advantage. Read: Ghemawat, Ch. 1. Question: What are Strengths & Weaknesses of Porter's 5 Forces? How Does it Apply to: Microsoft, Citigroup, Exxon and Giant integrated Oil Firms?

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Session 1.c. – Formulating Competitive Advantage 1. Define a SWOT Analysis 2. How to Formulate Business Strategy through a SWOT analysis Read: Ghemawat, Chapter One; BSA Reading 2. Question: How Can Your Firm’s Strength become a Weakness? SONY Betamax Henry Ford’s Model T vs. GM; Apple Computer vs. Microsoft; Merrill vs. E*Trade Session 2. a. – Define Your Firm’s Competitive Situation Please type 1 page: List 2 key threats to your firm and the 5 Forces in your industry. Just for your general background to pick key points, please look at p. 26 in Ghemawat book. In class we will analyze how: 1. The Generic Strategies Matrix may determine source of your firm’s competitive advantage. 2. Consequences of Strategic Choice: Low Cost vs. Differentiation 3. Decision Trees can delineate the specific Choices a firm has to Achieve its Objectives 4. To position your firm & 2 others on the Generic Strategies Matrix: P.56 in Ghemewat book. Session 2.b. Creating Superior Value 1. Track the Arrows of Influence on the Chart of the 7 Sources of Advantage. 2. How to Identify Your Firm's Sources of Competitive Advantage. 3. How to use your firm’s sources of advantage to create superior value via lower costs, or higher differentiation. Session 2.c.. How To Use The Value Map E*Trade– Competition in Financial Services 1. How to use the Value Map in The Financial Services Industry E*Trade vs. Merrill Lynch 2. How to use the Value Map to define the Value Positions held by Competitive Offerings and

to define your firm’s strategic direction. 3. How to evaluate the strategic competitive changes in your offerings in the market along the

Value Map commodity-specialty continuum.

4. We will compare Toyota, Honda and Competition in Motor Vehicles.

Read: Ghemawat Chapter 3. p. 49-59: BSA Readings 3

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Session 3. a. Compare Two Business Strategies in Retail Industry: Wal*Mart vs. eBay 1. How did Wal*Mart Transform the Retail Industry? 2. How did US and Global Retail Industries Respond to Wal*Mart? 1. In What Ways is Wal-Mart Vulnerable to eBay and to Other Firms? 4. Analyze the Causes of Retail Industry Transformation. Dynamics and Traps. 5. Your Strategic Recommendations for Wal*Mart and for eBay. Read: Wal*Mart Case in BSA book and Retail Handout and eBay Handout Session 3. b. – Technology as a Source of Value And Network Economics 1. How to Use Technology as a Competitive Advantage To Create Superior Value 2. How to use an Understanding of the Theories of Technology Progress as the basis for

Assessing the Competitive Environment 3. How to Target Your Firm’s Technology Strategy 4. Network Economics and Increasing Returns to Scale 5. Positive Feedback Dynamics of Network Economics 6. Virtuous Cycle and Vicious Cycle of Network Economics. Read: BSA Reading 5. Session 3.c. Operations As A Source of Competitive Advantage. 1. In Which Industries are Operations, Dominant Sources of Competitive Advantage? Why? 2. The Value Chain = Operations that Create Value & Costs or Investments They Incur. 3. Compressing Your Firm’s Cost Structure By Using Its Value Chain. Example: Little Debbie. 4. Visualize the Comparative Cost Structure Components of Your Four Competitors. 4. Analyze How Any of Your Competitors Cost Components is Lower than Yours. Read: Ghemewat: Ch. 3 p. 60-70

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Session 4. a. – Defining the Competitive Situation of: INTEL vs. AMD Intel vs. AMD Group Case Assignment Due In this session you will learn: 1. How to Apply Many Strategy Concepts to Intel vs. AMD, a case that is unfolding. 2. What forces affect both Offensive and Defensive Strategies? Read: Intel Case in BSA book p. 107-130 & some articles on 2 firms in Links on Course website Session 4. b. Cost Structure & Cost Behavior Over Time 1. How to analyze your firm’s cost structure to determine its impact on the firm’s strategy 2. The Experience Curve: How Behavior of A Firm’s Costs Change over Time and Volume. 3. How to identify a firm’s cost drivers and their economic impact on firm profits by using the different experience curves for each of your firm’s separate products or services. Read: BSA Reading 4. Question: How do firms achieve both low cost plus differentiation? Session 4.c. - Anticipating Competitive and Cooperative Dynamics 1. Why you must learn How to anticipate competitor's retaliation to your strategic actions. 2. How to use game theory, behavioral theory, and bio-evolutionary dynamics in a strategy. 3. How to use an understanding of industry dynamics to create business strategy 4. How to use the product life cycle, the product evolution cycle, the population ecology model, 1. How to identify the transition points in an industry’s evolution to identify strategic windows 6. How to strengthen your firm’s competitive advantage to become a sustainable advantage Read: Ghemawat, Chapter Four, and BSA Reading 5 Questions: How to collaborate with your competitors: Schwab, IBM, Oracle, Sony, Toyota, Pharmaceutical Giants & Biotech Firms, Auto Firms & Computers.

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Session 5.a. Browser Wars Case: Managing Dynamic Changes and Strategic Cooptition In this class you will learn:

1. What the Browser Wars Case reveals about major industry battles for competitive advantage. 1. The Complex Roles of Allies, Suppliers, Buyers, Competitors, and Governments in Strategy. 3. Learning how to Manage during Dynamic Change and how Best to use Strategic Cooptition. Question: How does the U.S. court ruling against Microsoft for monopolistic practices effect the strategic situation of competitors, suppliers, corporate buyers, alliance partners? Session 5.b. Barco vs. SONY Case. Competing on Technology & Operations In this session you will learn: 1. How to assess the relative technology, operations, and cost positions of competitors to

formulate competitive strategy.

2. How the changing dynamics of competition in an industry redefine the strategic situation facing competitors.

3. How to assess the importance of timing in executing strategy. Session 6a Virtual Firms Compression of the Value Chain: The Dell Computer Case Dell Computer Case Group Paper Assignment Due 1. How Industries Evolve as a function of: a) new technology & b) competition? 4. How the Internet Impacts on the Economics of various industries? 3. How sustainable is Dell Computer’s low cost and differentiation strategy? Session 6b. Review of Key Course Points To Prepare for the Final Exam. Summary of all Cases to Demonstrate all Concepts Review of Course &10 Business Strategy Basic Rules to help you on the Exam and at work. Thanks, Good Luck in Your Careers. Take Home Exam hard copy Due at my office 7-53 KMEC July 12, at 6:00PM

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Case Preparation Note Assignments

Intel vs. AMD

The purpose of this assignment is:

1) to give you practice in applying the tools from the “Formulating Competitive Strategy” lecture and readings to a very important current “live” case. 2) to help you evaluate accurately the strategic situation in which AMD finds itself in the microprocessor industry.

Instructions: See my BSA Web Page & click Intel vs. AMD for Key Articles for your paper. Read the Speech of Jerry Sanders CEO of AMD “How to Compete with and 800 pound Gorilla”. The case you have received in the case packet, Intel Corp., 1968-97 tells primarily the Intel side of the case. To complete the case, you will need to research, in the popular business press, 1) the Advanced Micro Devices side and, also, 2) the actions that Intel has taken since 1997. To keep this assignment do-able, the course web page contains a list of required and optional links. To get recent securities analysts reports on AMD and Intel go to my USEFUL RESEARCH SOURCES on the first page of my course outline on my course web page. Click it and then click BOBST LIBRARY DATABASES; go down alphabetically to INVESTEX. Click it and then click that you do have permission from NYU to use Investex. Then type in AMD and then Intel for latest research reports Group Assignment: The case preparation note you are to submit, as a team, is to contain the following sections, in the order listed, and in no more than 4 pages double-spaced, 12 pt. type with one-inch margins.

• The strategies being pursued by each competitor together with the reasoning

you used to determine that conclusion, • A SWOT analysis for AMD, • Your definition of the strategic situation AMD faces. • Briefly recommend a strategy for AMD and for Intel.

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Wal-Mart

Wal*Mart Case Analysis: 1. How did Wal*Mart Transform the Retail Industry? 2. How did US and Global Retail Industries Respond to Wal*Mart? 3. How is Wal-Mart Vulnerable? 4. What are Your Strategic Recommendations for Wal*Mart?

Discussion Questions

1) What are the key elements of Wal-Mart’s competitive strategy? How has the firm differentiated itself ?

2) Does Wal-Mart have a competitive advantage overall its competitors? 3) Identify the sources of advantage and quantify each in financial terms. 4) How well are the functions aligned with Wal-Mart’s overall competitive strategy? 5) What criteria should be used to judge Wal*Mart’s different strategic options? Which one(s) would you choose and why?

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The Browser Wars

The purpose of this assignment is to: 1. Give you an integrative case on the nature of competition in hi-tech markets 2. Introduce you to the strategic importance of standards battles Assignment: Read the Browser Wars Case Handout

• Develop a model of competition in this field. How is it different from other models of competition that you know of?

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Barco Projection Systems vs. Sony Case The purpose of this assignment is: 1. Go give you practice in comparing two different business strategies in the same marketplace. 2. To help you to understand how operations and technology contributes to creating superior value. 3. To be able to define and evaluate a firm’s strategic options in response to a competitor’s action.

• Describe the Key elements that define the competitive strategies of both Sony and Barco in the projection systems market.

• How does each firm define creating superior value? • How did they arrange their business functions to support that definition? • Draw the value map of the offerings in the projection systems market place (including

Barco’s options)

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Dell Computer Online Case Write a 3 page Group Paper on Dell Online: 30% of Course Grade

1. How did Dell combine both generic business strategies: Low Cost and Differentiation? 2. What is the impact of the Internet on Dell’s value chain and its business strategy? 3. How do you evaluate the potential of Dell’s Internet sales channel? 4. How substantial and sustainable are Dell’s advantages in comparison to his competitors?

5. Which of Dell’s competitors should it worry about? Why? In a one-page appendix do a SWOT analysis of Dell and 7 Sources of Competitive Advantage.

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