1 Fall 2008 (c) Copyright 2008 Mortensen Consulting Group LLC Session #3 Strategic Management Dr. Mark H. Mortensen Sessions 001 and 270 Thursdays 6:00PM to 9:00PM

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 2 Fall 2008 You Will be Prepared for Today Iff You: Have turned in Assignment #1 (Starbucks & Dunkin’ Donuts) Have read Chapter 3 Have read the Apple case study thoroughly (bonus: and determined the major problems and issues)

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 3 Fall 2008 Today 6:00Begin Errata from last week Discussion & summary of key points from last week Who are the groups? Discussion on Assignment #1 (DD & SB) Apple Computer Case Study 7:30BREAK Apple Computer Case Study (cont.) Lecture & discussion of Chapter 3 8:50 End

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 4 Fall 2008 Errata from Last Week We did not get to Chapter 3 last week Wrong title for Chapter 3 in the Syllabus – new version 2.0 fixes that Quote Attribution  "If I am to speak 10 minutes, I need a week for preparation; if 15 minutes, three days; if half an hour, two days; if an hour, I am ready now.” -- Woodrow Wilson  “It usually takes more than three weeks to prepare a good impromptu speech.” -- Mark Twain “It usually takes more than three weeks to prepare a good impromptu speech.” Assignment #0 – all completed

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 5 Fall 2008 Key Points from Last Week Chapter 2  Board of Directors – purpose & responsibilities  SOX effect on operations  Current trends in corporate governance  Importance of Executive Leadership, even in a “learning organization.” Case Study Methodology  Purpose of a Case Study  Outline of a Case Study  Procedure for Doing a Case Study

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 6 Fall 2008 Groups Group A  William Drayton  Michael Merson  Adam Siegel Group B  Brian Leosz  Michelle Mace  Ben Rogan Group C  Shahe Demirjian  Edward Morgan  Sasha Popovic

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 7 Fall 2008 Discussion on Assignment #1 (Dunkin’ Donuts and Starbucks) Visit both a Starbucks and a Dunkin’ Donuts retail store  Describe and contrast the atmospheres, types of menu items, service quality, and prices  Describe and contrast the patrons and how they react to the above  Talk to at least one person in the store about why they come there and relate their opinions  Describe your own experiences at each of them, from this and other visits. Visit the Starbucks and Dunkin’ Donuts web sites:  Try to determine their target markets, mission statements, and anything else you can glean about their strategies – write a paragraph or two on each  Contrast the two web sites  Contrast the apparent strategies of the two  Discuss how the information on the web sites does or does not match the reality in each case.

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 8 Fall 2008 Dunkin’ Donuts vs. Starbucks Dunkin’ Donuts Founded 1950 in Quincy, Mass. Privately owned FY07 - $6.6B 7,988 franchised locations by EOFY07  72% US  28% International in 44 countries “The objective of Dunkin’ Brands [DD and Baskin-Robbins] is to be the Quick Quality leader in its industry, offering a higher evolution of the standard quick dining experience, with innovative product choices at the right price, served fresh, meeting the needs of people who are busy living.” Starbucks Founded 1985 in Seattle, Wash. Publically owned (NASDAQ SBUX) FY07 – $9.4B 15,011 company-owned and JV locations by EOFY07 in 37 countries  70% US  30% International in 37 countries “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. The following six guiding principles will help us measure the appropriateness of our decisions:  Provide a great work environment and treat each other with respect and dignity.  Embrace diversity as an essential component in the way we do business.  Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.  Develop enthusiastically satisfied customers all of the time.  Contribute positively to our communities and our environment.  Recognize that profitability is essential to our future success.”

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 9 Fall 2008 Good Information Sources Direct observation & discussion Company web sites Annual reports 10-K filings Wikipedia articles on company Stock analyst reports News articles, found thru Google, etc. Dunn & Bradstreet (D&B) reports LinkedIn descriptions of companies Resumes of former employees.

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 10 Fall 2008 Apple Case Study

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 11 Fall 2008 Apple Case Study: Outline Case Study Background – The nature of competitive advantages over time in highly competitive, innovative industries. What should Apple do?  Define the Central Issues  Define the firm’s goals  Identify the constraints  Identify the alternatives  Select the best alternative  Develop an implementation plan

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 12 Fall 2008 Apple: Case Study Background(1): Apple History Competitive advantages in the 1980s made Apple the most profitable PC company in the world (What were they?) But “on a glide path to history” (What? Why?) Four successive CEOs (Sculley, Spindler, Amelio and Jobs) sought to reposition Apple in the PC Industry and to create a sustainable competitive advantage. (What did they try? What succeeded? What did they decide not to do?)

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 13 Fall 2008 Competitive advantages in the 1980s that made Apple the most profitable PC company in the world Ease of use Dominance in creative industries (design, desktop publishing), as well as education Buyer loyalty Proprietary operating system Strong branding Excellent industrial design

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 14 Fall 2008 Why was Apple “on a glide path to history”

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 15 Fall 2008 CEOs’ Strategies Sculley – low-cost producer; “hit products” every 6-12 months; Mac Classic vs. IBM clones; Powerbook laptop; Newton PDA; Taligent with IBM for new OS; PowerPC chips from IBM Spindler ( ) – reinvigorate core markets; killed Intel chip; licensed Mac OS to clone makers; killed Taligent; layoffs Amelio ( ) – servers & other high-margin devices; cancelled nextgen Mac OS; ended licensing program; bought NeXT (Jobs) Jobs – iMac; outsourced manufacturing; direct sales via website; image; industrial design

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 16 Fall 2008 Apple: Case Study Background(2): The Mac Business in the 21 st Century Technology & Innovation  Cutting edge experience  High-end  Differentiated from Wintel machines  Intel Chipset  Overhauled Mac OS X in 2001 (UNIX)  Proprietary Apple-developed applications Distribution & Sales  Retail stores

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 17 Fall 2008 Apple: Case Study Background(3): The Evolving PC Industry The dynamics of the PC industry have radically changed in the last 20 years. (How?) Buyers Rivalry among suppliers Barriers to entry Complements to the PC industry Supplier vs. Manufacturers balance of power Substitutes

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 18 Fall 2008 Apple: Case Study Background(4): Apple Beyond Macintosh iPod iTunes Apple TV iPhone

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 19 Fall 2008 Questions for Next Week Has Steve Jobs finally solved Apple’s long-standing problems a. With respect to the Macintosh business? b. With respect to its broader strategic position?  Going forward, what should Steve Jobs do?

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 20 Fall 2008 Apple’s Long-Standing Problems

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 21 Fall 2008 Apple SWOT(s)

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 22 Fall 2008 Apple’s Goals

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 23 Fall 2008 Apple’s Constraints

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 24 Fall 2008 Apple’s Alternatives

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 25 Fall 2008 Apple’s Best Alternatives

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 26 Fall 2008 Apple’s Implementation Plan

Mortensen Consulting Group (c) Copyright 2008 Mortensen Consulting Group LLC 27 Fall 2008 Reminder for Next Week Read Chapter 12: Strategic Issues in Managing Technology and Innovation Re-read Apple Case Study and think about the questions we will be asking Study for Quiz on Chapters 1-3