1. Competitive Intelligence Dr. Richard Michon TRSM 1-040 rmichon@ryerson.ca www.ryerson.ca/~rmichon/mkt731

2. Scope of this Course Michael Porter Business economics Economic reasoning underneath business strategy

3. Is this course matching your personal motivations? Intellectual curiosity Abstract concepts Quantitative reasoning Paris Hilton would not do well in this class

4. Is this course matching your student motivations? Minor or Major? Motivation to work and learn “A” students? Students only doing time at Ryerson do not do well in this class

5. Grading D- D D+ C- C C+ B- B B+ A- A A+

6. Is this course matching your professional motivations? Will not bring you practical hands-on job skills Will give you business insight Will make you look more intelligent and help you make your way around as a smart kid!

7. Course Framework Cost, Pricing, and Value Sustainable advantage Understanding the industry structure and competitors’ behaviour

8. Course Content (1) Part 1: Firm Boundaries Microeconomics (2) Economies of scale and scope (3) Vertical integration & diversification (4) Part 2: Market and Competitive Analysis Competition and Competitors (5) Competition, strategic commitment, and dynamic pricing strategy (7) Industry analysis (8)

9. Course Content (2) Part 3:Strategic Positioning and Dynamics Positioning for competitive advantage (9) Sustaining Competitive Advantage (10) Part 4: Internal Organization Structure, culture and strategy (11) Markstrat wrap-up (12)

10. Course material David Besanko, David Dranove, Mark Shanley, Scott Schaefer, Economics of Strategy, 6th Edition, Wiley, 2013 $141 (Binder) or $69 (e-book) Markstrat online license and manual (60 USD) Purchase: www.stratxstore.comwww.stratxstore.com Additional readings are posted on the website

11. Course evaluation Three quizzes out of four (individual) 15% Midterm exam 20% Markstrat Simulation 35% Markstrat industry simulation (group) 15% One Markstrat industry analysis report (group) 10% Markstrat peer evaluation (individual) 10% Final Exam (cumulative, must pass) 30% 100%

12. Enduring Principles “He who loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast. ” Leonardo da Vinci

13. Enduring Principles "Theory without practice is empty; Practice without theory is blind." --Immanuel Kant "Practice without Theory is blind, Theory without practice is sterile" -- Karl Marx "Practice without theory is dangerous, but theory without practice is madness". --Mao-Tse-Tung

14. Evolution of the Modern Firm Strategy = f (Business Conditions, Industry structure, Monopoly Power) Business Condition = f (Country’s Infrastructure, Technology, Governments) Infrastructures = f (Transportation, Communications, Finance, Institution)

15. Infrastructure Assets that assist in the production or distribution of goods and services that an individual firm can not provide, such as transportation (roads, bridges, etc.), telecommunications, financing.

16. 1840… Infrastructure (Lack of …) Transport: Sea, Rail, Waterways (Canada and US) Communications: Mail, Telegraph, No market info. Finance: Small private banks, No asset financing, No spot markets Technology: Artisan, piecemeal production Governments: Investments, lack of laws and regulations Firms: Small, local, family owned & operated Producer-Merchants-Brokers-Agents-Buyers

17. The Chicago Hub

18. 1910… Infrastructure (Transaction efficiencies) Transport: Efficient rail/waterways  Logistics Communications: Telephone Finance: Investment bankers, accounting practices (i.e. financial reporting and inventory turnovers), stock exchanges Technology: Large throughputs, Economies of scale and scope (ROI), Office efficiency Gov: Safety, antitrust, insurance, regulations Firms: Some small, some large, professional managers, hierarchical organizational structures, vertical integration.

19. Yesterday… 1980s Infrastructure Transport: Air and ground (multi-modal) Communications: EDI, IT and Web based Finance: Financial instruments, LBO, mergers Technology: CAD and CAM, JIT tech and logistics Government: Relaxed rules, support R&D & industrial clusters Firms: Large conglomerates and portfolio holdings, diversifications

20. Today… 2010s Infrastructure Transport: Air and ground (multi-modal) (global warming/costs) Communication: EDI, IT and Web based, Web 2.0 (Social Mkt) Finance: Collapse of institutions, credit crunch, ethics and governance Technology: CAD and CAM, JIT tech and logistics, turnaround cycles, short runs, small volumes Government: Tightening rules, re-invest in infrastructures, social programs Firms: Downsizing (lean and mean), back to their knitting, focusing on core activities, outsourcing the rest, networking, flat structure, virtual organizations, governance

21. Learning Strategies  Adaptive responses to the environment and competition Following recipes  Failures Principles are universal  Infrastructures drive businesses Large upfront investments  Cost advantages only if large throughputs Microeconomics theory Applications are localized  Distribution chains (short or long) Vertical integration or quasi integration Functions remain the same but can be performed by different players.

22. Next Week, for Survivors Microeconomic Primer Demand and cost functions More on Markstrat