1. Advanced Strategy Nathan Washburn Associate Professor Huntsman School of Business

2. 2 Personal Introduction  Seven years at Thunderbird teaching MBA, Global MBA, and Executive Education  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 (BYU)  Two and 1/2 years in Bolivia as LDS missionary and as a rural development specialist  Grew up in Snowflake Arizona

3. 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. 4 Class business  Review syllabus  Form teams

5. Introduction to Strategy  External analysis  Internal analysis  Blue Ocean Strategy  Managers as Conduits  National advantages  Emerging multinationals  Global Strategy 5

6. 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

7. 7 Which forces are driving profitability? How have the forces changed? Average ROIC, 1992-2006

8. 8 Team challenge – 90 second answers 1. Explain why the “Threat of Substitutes” is a key feature of an industry. Illustrate with an example that clearly shows how this works 2. What is the relationship between “The Threat of New Entrants” and “Barriers to Entry?” Give an example of a company that has erected barriers and explain how this impacts the company 3. You are doing an analysis of the Pharmaceutical industry. Describe the power of buyers and explain how it impacts profitability 4. How do you know if your Supplier is powerful? Given a specific example of this and explain why the supplier is so powerful. 5. What are the different ways that rivals in an industry can compete? What is the best way to compete? Give an example of good competition (from the 5 forces perspective), and explain why it is good.

9. 9 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

10. Ice-Fili External Analysis

11. 11 Ice-Fili Case Question  How structurally attractive is the Russian ice cream market? How is it likely to evolve? How should Ice-Fili compete in this market? 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

12. 12 Industry analysis  Power of buyers?  Power of suppliers?  Threat from substitute products?  Threat from new entrants?  Threat from Rivals? How attractive is this industry? What would a good strategist do with this information?

13. 13 Potential sources of advantage in this market  R&D  Marketing/branding  Distribution  Manufacturing  Supply chain

14. Competitors  Why did Ben & Jerry’s fail?  Why did Unilever fail?  Why has Baskin-Robbins succeeded?  Why has Nestle succeeded?  Why are regional players successful?  Is the association a good idea? What should it do? 14

15. 15 What strategic options does Ice-Fili have?  Can they transform the industry (or participate in its transformation)?  Can they compete with regional players (very low cost generic ice cream produced using smaller plants, newer equipment, lower labor costs, fewer product lines, lower distribution costs)  Can they compete with Nestle (preferred brand, R&D experience, control distribution, regionalized plants reduces distribution and labor costs)  Be the leader in a highly concentrated, brand sensitive, high growth industry!

16. Concentrated, brand sensitive, high growth  Products: cut product line from 170 to 40 and make sure they win in a blind taste test  Branding/Marketing: emphasize ‘Russian-ness’ of their product. Spend 10X (5 million)  Distribution/Sales: take control of distribution to ensure products are available when the impulse strikes  Manufacturing: simplify Moscow plant and invest in smaller regional plants (acquisition) 16

17. 17 Update  Ice-Fili acquired by Fleming Family & Partners Combined with ‘Cold Service’ and re-branded as Iceberry  Focused on branding and marketing - #1 Brand in Russia prize  New product in Vologda with Vologda butter and milk  Unilever back in Russia – acquired local player, $140 million for plant in Tula  Nestle largest market share