1. 6/30/20151 Business Strategy & Policy PSU MGMT #562 Dave Garten daveoutside@alum.mit.edu Week # 1

2. What is Strategy? 6/30/2015Dave Garten – Business Strategy2

3. 6/30/2015Dave Garten – Business Strategy3 Dave Garten – Background Highlights Current Faculty, PSU/OEMBA – Strategy, M&A, Negotiation, Biz Projects Consulting: management, strategy, alliances, M&A Board(s): Organically Grown Company, SeQuential, Bridlemile Soccer, Forest Park Conservancy Prior CEO, SeQuential Biofuels, Inc. Intel – 15 year career  General Manager  Director of Business Development. >200+ alliances  Marketing and product management Engineer early-on – designed fuel injection Education: MBA M.I.T. 1987; BS/MS Engineering

4. Strategy Evolution Ancient Greece – “Startegos” –military commander Industrial Revolution  railroads & mass markets  capital, credit, large scale investment to enable economies of scale/scope  high level thinking Sloan (GM) – devised a successful strategy based on S & W of Ford  segmentation and differentiation Learning curve. Labor costs reduced at a constant rate as cumulative production doubled B-school focused on matching S/W with O/T  SWOT. Rise of strategy consultants in the 60s and 70s. BCG  BCG Growth Share matrix McKinsey  SBUs 6/30/2015Dave Garten – Business Strategy4 Source: Derived from Pankai Ghemawat, Strategy and the Business Landscape

5. Terminology Business Model Vision Mission Strategy Objectives Tactics Emergent Strategy 6/30/2015Dave Garten – Business Strategy5

6. What is a business model? 6/30/2015Dave Garten – Business Strategy6 A business model describes the rationale of how an organization creates, delivers, and captures value. The process of business model design is part of business strategy.rationale organizationbusiness strategy Customer Value Proposition Resources Profit Formula Key Processes Revenue model Cost structure Margin model Resource velocity Wealth, access, skills or time. Source: Derived from Johnson, Christensen, Kagermann, Reinventing Your Business Model

7. 6/30/2015Dave Garten – Business Strategy7 Vision & Mission & Strategy “Every business, if it is to succeed, must have a sense of direction and mission, so no matter who you are and what you are doing, you know how you fit in and that what you are doing is important.” -- Lou Gerstner, 2002

8. 6/30/2015Dave Garten – Business Strategy8 Vision & Mission & Strategy Vision: Mission: Strategy: Derived from Strategic Mgt by Arnoldo Hax, Strategic Mgt by Fred R. David. X “what do we want to become?” “what is our business?” “means to accomplishes objectives”

9. Strategy Development 6/30/2015Dave Garten – Business Strategy9 Strategy = an objective + “the how”

10. 6/30/2015Dave Garten – Business Strategy106/30/201510 Strategy Development Tangible objectives (targets) Financial Objective examples:  Achieve ROIC of 15%, AAA bond rating Strategic Objective examples:  Achieve market share of 20%, lowest unit cost

11. 6/30/2015Dave Garten – Business Strategy116/30/201511 Strategy Development How to achieve objectives  choice Using/developing a competency  Hopefully -> exploiting competitive advantage Responding to changing environment Good Strategy 50% experience 50% data Strategy is ½ planned -- ½ Unplanned

12. Strategy Example 6/30/2015Dave Garten – Business Strategy12

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14. 6/30/2015Dave Garten – Business Strategy14 Levels of Strategy Corporate Strategy Overall vision, mission Kinds of business, portfolio management Business Strategy Business vision, mission What product and/or service to offer How to manufacture, how to get to market, etc. Functional Strategy Functional vision & mission Focused domain

15. 6/30/2015Dave Garten – Business Strategy15 What is Good Strategy? How do you know a good strategy when you see it? Will have many of these qualities: X

16. Emergent Strategy 6/30/2015Dave Garten – Business Strategy16

17. 6/30/2015Dave Garten – Business Strategy17 Strategy Development External Analysis “Basis of Competition” Internal Analysis “What we have” Mission Strategy R & D Supply Mftg Sales Mktg Coordinated action (tactics) “Translation of Strategies” Strategic Management: Exploit & create new and different opportunities for tomorrow Setting up l/t success to support mission, strategies & tactics Strategic Management: Exploit & create new and different opportunities for tomorrow Setting up l/t success to support mission, strategies & tactics Frequency

18. 6/30/2015Dave Garten – Business Strategy18 Strategy – reality check What are Gerstner’s major points re: strategy? X

19. 6/30/2015Dave Garten – Business Strategy19 Strategic Thinking & Leadership What is the relationship between strategic thinking & leadership? X

20. 6/30/2015Dave Garten – Business Strategy20 Strategic Leadership (BA521) Strategic Thinking and Visioning: Effective managers act with the future in mind. They plan for and make decisions within the framework of the enterprise’s strategic intent. They know and understand the factors influencing strategy (e.g., core competence, customers, competition, and the organization’s current strengths and limitations). They consider future impact when weighing decisions. Effective managers are imaginative. They are able to create a vision of a preferred future for their team. They communicate it clearly and enthusiastically in such a way that others are attracted to it. They are able to bring a vision to life for team members. Risk-Taking: Effective managers have a history of, and propensity for, taking calculated chances to achieve goals. They find a balance between analysis and action. When they fail, they accept it, learn from it, and move on to the next challenge.

21. Critical Thinking Model 6/30/201521

22. 6/30/2015Dave Garten – Business Strategy22 Re-occurring Themes in Strategy Change is a constant Art – not a science Gray - not white & black Combinations of strategies– rarely a pure single strategy determines winners Successful strategies (businesses) learn, adapt and take advantage of change