Advanced Strategy Nathan Washburn Associate Professor Huntsman School of Business

2 Personal Introduction  Seven years at Thunderbird teaching MBA, Global MBA, and Executive Education, MA  Ph.D. in Strategic Management from Arizona State University  Four years as a change management consultant with Booz Allen Hamilton (Washington DC) and Andersen Consulting (Dallas)  Four years in Asia (Taiwan and Japan) teaching English and Director of an English School  Master of Organizational Behavior and BA in International Relations

Amplifying Leadership for Far-off Employees  Leadership is perceptual, and it is transmitted through stories  Three dominant factors: concern for employees, compelling vision, high standards  Stories only create positive leadership effects if they have the right level of unexpectedness  Stories lose their potency with geographic and cultural distance  Amplifiers are individuals who can appropriately translate leadership into the new contexts 3

4 Class business  Review syllabus  Form teams

Strategy Topics  External analysis  Internal analysis  Blue ocean strategy  Corporate social responsibility  Global strategy 5

6 5 forces that influence industry profitability Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products or Services Rivalry among Existing Competitors

Important 5 forces nuances to consider  Bargaining power of buyers: There are layers (consumers, distributors, etc.)! The most obvious may not be the most important  Bargaining power of suppliers: Unions are important – don’t forget them! Who are suppliers for banks?  Threat of new entrants: Once they enter – they are competitors. It is the ‘threat’ that matters.  Threat of substitutes: They often innovate around the entry barriers.  Competitive rivalry: Good in new industries (share costs of building the market), but typically you should avoid it! 7

8 Which forces are driving profitability? How have the forces changed? Average ROIC,

9 Position in industry explains performance

Threat of New Entrants  Economies of scale (must enter on large scale or accept a cost disadvantage)  Network effects  Customer switching costs  Capital requirements  Incumbency advantages independent of scale  Unequal access to distribution channels  Restrictive government policy  Expected retaliation Power of Suppliers Supplier group is more concentrated than the industry it sells to Supplier group does not depend heavily on the (a single) industry for its revenue Industry participants face switching costs when changing suppliers Suppliers products are differentiated There is no substitute for what the supplier group provides Supplier group could threaten to forward integrate Power of Buyers There are few buyers, or each one purchases in volumes that are large relative to the size of a single vendor The industry’s products are standardized or undifferentiated Buyers face few switching costs in changing vendors Buyers can threaten to backward integrate Buyers are very price sensitive Substitutes The substitute offers an attractive price- performance trade-off to the industry’s product The buyer’s cost of switching to the substitute is low Differentiated industry products that are valued by customers reduce this threat Rivalry There are numerous or equally balanced competitors Industry growth slows or declines When high exit barriers prevent competitors from leaving Rivals have high commitment to the industry Price based competition if: fixed costs are high and marginal costs are low; there is a lack of differentiation opportunities or low switching costs; capacity must be expanded in large increments; product is perishable

11 Conducting an external analysis  Define the industry – not to narrow or broad  Identify participants  Assess drivers of force – strong and weak  Determine controlling forces that explain profitability  Analyze possible changes in forces  Identify how forces can be influenced  Identify attractive positions