Strategic Management I MIT Open Courseware 15.902

http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/15-902Fall-2006/CourseHome/index.htm

This course focuses on some of the important current issues in strategic management. It will concentrate on modern analytical approaches and on enduring successful strategic practices. It is consciously designed with a technological and global outlook since this orientation in many ways highlights the significant emerging trends in strategic management. The course is intended to provide the students with a pragmatic approach that will guide the formulation and implementation of corporate, business, and functional strategies.

Required Textbook
Hax, Arnoldo C., and Dean L. Wilde. The Delta Project: Discovering New Sources of Profitability. New York, NY: Palgrave, 2001. ISBN: 0312240465.

Recommended Textbook
Hax, Arnoldo C., and Nicolas S. Majluf. The Strategy Concept and Process: A Pragmatic Approach. 2nd ed. Upper Saddle River, NJ: Prentice Hall, 1996. ISBN: 0134588940.


Each day's reading is listed below.



Course readings. SES # TOPICS Readings
I. Introduction and Overview of Strategic Management
1 The Delta Model Hax and Wilde. Chapters 1 and 2.
2 Porter's Frameworks and the Resource-Based View of the Firm Porter, Michael E. "Towards a Dynamic Theory of Strategy." Strategic Management Journal 12 (1991): 95-117.

Grant, Robert H. "The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation." California Management Review 33, no. 3 (1991).

Hax and Wilde. Chapter 12.

II. Business Strategy
3 Customer Segmentation and Customer Value Proposition Hax, Arnoldo C. "Achieving the Potentials of Your Organization - How to Overcome the Dangers of Commoditization." MIT Sloan Working Paper No. 4260-02. (September 2002).
4 The Firm as a Bundle of Competencies and Putting it All Together Hax and Wilde. Chapters 3-5.
5 Industry Structure and Competitive Interaction
6 The Decommoditization of a Business
7 Competitive Positioning
III. Technology and Industry Transformation
8 Sustaining Competitive Advantage
9 Competitive Dynamics
10 Putting it All Together: Integrating The Critical Tasks of Strategy Hax and Wilde. Chapter 6.
IV. Corporate Strategy
11 Corporate Strategy - The Core Concepts Hax, Arnoldo, and Nicolas Majluf. "Corporate Strategic Tasks." European Management Journal12, no. 4 (1994): 366-381.
12 Corporate Philosophy and Culture
13 General Principles of Organization Design Galbraith, Jay R. "Linking Customers and Products - Organizing for Product and Customer Focus," and "Structuring Global Organizations." Chapters 2 and 4 in Tomorrow's Organization. Edited by Susan A. Mohrman, Jay R. Galbraith, and Edward E. Lawler III. Jossey-Bass, 1998. ISBN: 0787940046.
14 Human Resources Management and Knowledge Management
15 Business Processes: The Core Concepts and Managing the Global Supply Chain Hax and Wilde. Chapter 7.
V. Aggregate and Granular Metrics
16 Metrics of Value Creation Hax and Majluf. Chapter 17.

"America's Best and Worst Wealth Creators." Fortune, December 18, 2000.

"America's Best and Worst Wealth Creators." Fortune, December 10, 2001.

Slywotzky, Adrian J., and Richard Wise. "The Growth Crisis and How to Escape It." Harvard Business Review (July 2002): 72-83.

17 The Balanced Scorecard and Granular Metrics Hax and Wilde. Chapters 9 and 10.

Kaplan, Robert S., and David P. Norton. "Having Trouble with Your Strategy? Then Map It." Harvard Business Review (September-October 2000): 167-176.

VI. Integration
18 Organizational Leadership

General References
Bartlett, C., and S. Ghoshal. Managing Across Borders: The Transnational Solution. Boston, MA: Harvard Business School Press, 2002.

Brandenburger, A. M., and B. J. Nalebuff. Co-opetition. New York, NY: Doubleday & Company, 1996.

Kim, W. Chan, and R. Mauborgne. Blue Ocean Strategy. Boston, MA: Harvard Business School Press, 2005.

Christensen, C. The Innovator's Dilemma: When Technologies Cause Great Firms to Fail. Boston, MA: Harvard Business School Press, 1997.

———. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Collis, D., and C. Montgomery. Corporate Strategy: Resources and the Scope of the Firm. Westport, CT: Irwin Press, 1997.

Cusumano, M. A., and C. C. Mardikes, eds. Strategic Thinking for the New Economy. Hoboken, NJ: Jossey-Bass, 2001.

Foster, R., and S. Kaplan. Creative Destruction. New York, NY: Doubleday & Company, 2000.

Galbraith, J. Designing the Global Corporation. Hoboken, NJ: Jossey-Bass, 2000.

Ghemawat, P., D. Collis, G. Pisano, and J. Rivkin. Strategy and the Business Landscape. Upper Saddle River, NJ: Prentice Hall, 2001.

Hamel, G., and C. K. Prahalad. Competing for the Future. Boston, MA: Harvard Business School Press, 1996.

Hayes, R., G. Pisano, and D. Upton. Strategic Operations: Competing Through Capabilities. New York, NY: Free Press, 1996.

Kaplan, R. S., and D. P. Norton. Strategy Maps: Converting Intangible Assets Into Tangible Outcomes. Boston, MA: Harvard Business School Press, 2004.

Pfeffer, J. The Human Equation. Boston, MA: Harvard Business School Press, 1998.

Porter, M. Competitive Advantage. New York, NY: Free Press, 1985.

———. The Competitive Advantage of Nations. New York, NY: Free Press, 1990.

Prahalad, C. K., and V. Ramaswamy. The Future of Competition. Boston, MA: Harvard Business School Press, 2004.

Reichheld, F. Loyalty Rules. Boston, MA: Harvard Business School Press, 2001.

Saloner, G., A. Shepard, and J. Podolny. Strategic Management. New York, NY: John Wiley & Sons, 2001.

Shapiro, C., and H. Varian. Information Rules. Boston, MA: Harvard Business School Press, 1999.

Stern, J. M., and J. S. Shiely. The Eva Challenge: Implementing Value-Added Change in an Organization. New York, NY: John Wiley & Sons, 2001.

Thompke, S. Experimentation Matters: Unlocking the Potential of New Technologies for Innovation. Boston, MA: Harvard Business School Press, 2003.

Ulrich, D. Human Resource Champions. Boston, MA: Harvard Business School Press, 1997.

von Hippel, E. Democratizing Innovation. Cambridge, MA: MIT Press, April 2006. ISBN: 0262720477.


Lecture Notes

Lecture notes files. SES # TOPICS
I. Introduction and Overview of Strategic Management
1 The Delta Model (PDF - 5.5 MB)
2 Porter's Frameworks and the Resource-Based View of the Firm (PDF 1 - 1.6 MB) (PDF 2) (PDF 3)
II. Business Strategy
3 Customer Segmentation and Customer Value Proposition (PDF - 4.7 MB)
4 The Firm as a Bundle of Competencies and Putting it All Together (PDF 1 - 1.6 MB) (PDF 2)
5 Industry Structure and Competitive Interaction
6 The Decommoditization of a Business (PDF)
7 Competitive Positioning (PDF 1) (PDF 2)
III. Technology and Industry Transformation
8 Sustaining Competitive Advantage (PDF)
9 Competitive Dynamics (PDF 1 - 3.0 MB) (PDF 2 - 1.4 MB)
10 Putting it All Together: Integrating The Critical Tasks of Strategy
IV. Corporate Strategy
11 Corporate Strategy - The Core Concepts (PDF 1 - 1.7 MB) (PDF 2 - 1.2 MB) (PDF 3 - 1.1 MB)
12 Corporate Philosophy and Culture
13 General Principles of Organization Design (PDF 1 - 3.7 MB) (PDF 2) (PDF 3)
14 Human Resources Management and Knowledge Management
15 Business Processes: The Core Concepts and Managing the Global Supply Chain
V. Aggregate and Granular Metrics
16 Metrics of Value Creation
17 The Balanced Scorecard and Granular Metrics
VI. Integration
18 Organizational Leadership

http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/15-902Fall-2006/LectureNotes/index.htm





Assignments

Assignment cases. SES # TOPICS CASES AND QUESTIONS
I. Introduction and Overview of Strategic Management
1 The Delta Model Questions for Discussion
i. Which of the three options presented - Best Project, Total Customer Solutions, System Lock-In - seems to be the most appropriate, and under which conditions?

ii. Select some companies that you are familiar with and try to identify what, in your judgment, is the existing strategic positioning of the company and whether you would suggest a better alternative.

2 Porter's Frameworks and the Resource-Based View of the Firm Questions for Discussion
i. How would you use the three frameworks?

ii. Does anyone of them seem to you to dominate the others or could you benefit from selectively using all of them?

II. Business Strategy
3 Customer Segmentation and Customer Value Proposition Questions for Discussion
i. Identify a company that you are familiar with and try to perform a customer segmentation.

ii. Position the resulting tiers in the Delta Model Triangle.

iii. At least for one tier, develop a creative custom value proposition.

4 The Firm as a Bundle of Competencies and Putting it All Together Questions for Discussion
i. How does the resource-based view of the firm compare with the methodology suggested by the Delta Model to address the firm's competencies?

ii. Select a company that you are familiar with and try to identify its existing and desired capabilities.

5 Industry Structure and Competitive Interaction Yoffie, David B., and Yusi Wang. "Cola Wars Continue: Coke® and Pepsi in the Twenty First Century." Boston, MA: Harvard Business School Case 9-702-442, January 11, 2002.

Questions for Discussion
i. Why is the soft drink industry so profitable?

ii. Compare the economics of the concentrate business to the bottling business; why is the profitability so different?

iii. How has competition between Coke® and Pepsi affected the industry profits?

iv. Can Coke® and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-carbonated drinks?

You might consider using Porter's Five Forces Framework to address some of these issues.

6 The Decommoditization of a Business Anand, Bharat N., Michael G. Rukstad, and Christopher H. Paige. "Capital One Financial Corporation." Boston, MA: Harvard Business School Case 9-700-124, April 24, 2000.

Questions for Discussion
i. What are the key elements of Capital One's strategy that allows them to differentiate themselves from the rest of the industry?

ii. How sustainable is Capital One's competitive advantage? What can competitors do?

iii. Is the strategy transportable to other industries?

In responding to question "i", you might identify Capital One's competencies by considering the eight strategic positionings that are part of the Triangle in the Delta Model.

7 Competitive Positioning Ghemawat, Pankaj, Stephen P. Bradley, and Ken Mark. "Wal*Mart Stores in 2003." Boston, MA: Harvard Business School Case 9-704-430, September 18, 2003.

Questions for Discussion
i. What are the sources of Wal*Mart's competitive advantage in discount retailing?

ii. How sustainable will its position be in the future?

iii. What challenges does Wal*Mart face?

In responding to question "i", you might identify Wal*Mart's competencies by considering the eight strategic positionings that are part of the Triangle in the Delta Model

III. Technology and Industry Transformation
8 Sustaining Competitive Advantage Rivkin, Jan W., and Michael E. Porter. "Matching DELL™." Boston, MA: Harvard Business School Case 9-799-158, June 06, 1999.

Ghemawat, Pankaj, and Jan W. Rivkin. "Creating Competitive Advantage." Boston, MA: Harvard Business School Case 9-798-062, January 25, 1998.

Questions for Discussion
i. How and why did the personal computer industry come to have such low average profitability?

ii. Why has DELL™ been so successful?

iii. Prior to the recent efforts by competitors to match DELL™ (1997-1998), how big was DELL™'s competitive advantage? Specifically, calculate DELL™'s advantage over Compaq in serving a corporate customer.

iv. How effective have competitors been in responding to the challenge posed by DELL™'s advantage? How big is DELL™'s remaining advantage?

DELL™ is properly being presented as one of the most innovative companies, the creator of a business model that has received a great deal of attention in the networked economy. Questions i. and ii. can be addressed using Porter's Five Forces and Porter's Value Chain frameworks respectively. The third question allows for you to do some numerical calculations to quantify DELL™'s advantage over Compaq. You are welcome to work in groups in preparation of this analysis.

9 Competitive Dynamics Ghemawat, Pankaj, and Bret Baird. "Leadership Online (A): Barnes & Noble vs. Amazon.com." Boston, MA: Harvard Business School Case 9-798-063, May 26, 1998.

Corts, Kenneth S., and Jan W. Rivkin. "A Note on Microeconomics for Strategists." Boston, MA: Harvard Business School Case 9-799-128. March 30, 1999.

Questions for Discussion
i. Based on your own experience of traditional bookselling and your exploration of online bookselling, compare willingness-to-pay for books supplied by these two business models.

ii. Also compare the forecast long-run cost position of a successful online bookseller to Barnes & Noble's traditional business model. (Assume that Exhibits 4 and 7 in the case reflect average discounts of 10% off list price for Barnes & Noble's traditional bookstores and 25% off list for the online bookseller.)

iii. Assess Barnes & Noble's response to the substitution threat from AMAZON®. How did AMAZON® respond in turn, and to what net effect?

iv. Who will be the online leader? Will it ever make much money selling books (as opposed to selling stock)?

Please contrast the competitive positioning of a traditional, off-line, competitor like Barnes & Noble vs. an on-line channel like Amazon.com. With regard to question i., a customer willingness to pay for a product or a service is the maximum amount of money a customer is willing to part with in order to obtain a product or a service. The question is whether you find any significant difference in your willingness to pay for a book being acquired under these two different channels. In question ii. You might want to use the most recent data provided in Exhibit 4 (1996 for Barnes and Noble) and Exhibit 7 (F2001E for AMAZON®). Remember that Barnes & Noble provides 10% discount off list price, and AMAZON® provides 25%. The case is a good vehicle also to talk about the substitution threat Barnes & Noble and how it is responding against AMAZON®.

10 Putting it All Together: Integrating The Critical Tasks of Strategy Questions for Discussion
i. What is the role of the frameworks that we have discussed in the course (Porter, Resource-Based View for the Firm, and the Delta Model) in the definition of the critical strategic tasks?

ii. Be ready to discuss the issues that you face when implementing a business strategy.

IV. Corporate Strategy
11 Corporate Strategy - The Core Concepts Questions for Discussion
i. What are the central differences that exist between the development of a corporate and a business strategy?

ii. Should corporate strategy be formulated first and then followed by the development of the individual business strategies that are part of the corporate portfolio (a top-down approach), or should the business strategies be done first and then followed b the formulation of a corporate strategy (bottom-up approach)?

iii. Under which conditions do you favor one approach vs. another?

Be prepared to discuss each of the 10 corporate tasks described in the Hax and Majluf paper.

12 Corporate Philosophy and Culture Aguilar, Francis J., and Arvind Bhambri. "Johnson & Johnson (A)." Boston, MA: Harvard Business School Case 9-384-053, August 19, 1983.

Aguilar, Francis J., and Arvind Bhambri. "Johnson & Johnson (B): Hospital Services." Boston, MA: Harvard Business School Case 9-384-054, August 19, 1983.

Questions for Discussion
(Johnson & Johnson (A))

i. Comment on Johnson & Johnson (J&J) philosophy and culture. Are they overdoing their decentralization policy? What is your opinion about "The Credo?"

ii. How are strategic and operational responsibilities handled at J&J? Do you like their strategic planning process and their executive compensation?

(Johnson & Johnson (B): Hospital Services)

iii. By establishing the Hospital Services Group (HSG), J&J seems to be taking an action against the fiber of its decentralization philosophy and culture. Do you agree with that decision?

iv. Comment on the charter of HSG. How would you prevent possible conflicts between HSG and the J&J companies?

Although these cases on the surface are quite old, they address some very critical issues that have profound relevance in management regardless of time. The A case presents a company that is enormously consistent in terms of its culture, management processes, and philosophy. Decentralization is the trademark of that organization. Case B deeply challenges the effectiveness of this management structure. I have two very interesting tapes of Jim Burke, who was CEO of Johnson & Johnson at that time that I would like for you to see.

13 General Principles of Organization Design Questions for Discussion
i. What are the advantages and disadvantages of the three major organizational archetypes: functional, divisional, and holding organizational forms?

ii. How do you develop a properly balanced Back-End Front-End organizational form?

iii. How do you assume proper horizontal coordination across the individual organizational units?

14 Human Resources Management and Knowledge Management Bartlett, Christopher A. "McKinsey and Company: Managing Knowledge and Learning." Boston, MA: Harvard Business School Case 9-396-357. June 28, 1996

Questions for Discussion
i. How was the obscure little firm of "accounting and engineering advisors" able to grow into the world's most prestigious consulting firm fifty years later? What was the unique source of competitive advantage developed by James O. McKinsey and later Marvin Bower?

ii. How effective was Ron Daniel in leading McKinsey to respond to challenges identified in the Commission on Firm Aims and Goals? What contribution did Fred Gluck make to the required changes?

iii. Judging by the evidence in the three mini-cases of front-line activities in the mid-1990s, how effective has the firm been in its two-decade long change process?

What is your evaluation of Rajat Gupta's "four-pronged" approach to knowledge development and application within McKinsey? As a senior partner, what specific advice would you give him?

15 Business Processes: The Core Concepts and Managing the Global Supply Chain Yoshino, Michael Y., and Anthony St. George. "Li & Fung (A): Beyond 'Filling in the Mosaic' -- 1995-98." Boston, MA: Harvard Business School Case 9-398-092. January 05, 1998.

Questions for Discussion
i. How is Li and Fung able to maintain margins three times those of the rest of the industry? What are its specific strengths and how does it differ from more traditional competitors?

ii. What attributes of Chinese business culture does the company exhibit? Are these strengths for the company?

iii. What are the benefits of the Li and Fung matrix sourcing system?

iv. How does the venture capital group contribute to Li and Fung's growth? What are the challenges the company faces going ahead and what issues does it need to address in order to expand? How and where should it expand?

V. Aggregate and Granular Metrics
16 Metrics of Value Creation Questions for Discussion
i. Discuss the role of metrics that contribute to the economic value generated by a strategy.

17 The Balanced Scorecard and Granular Metrics Questions for Discussion
i. Make sure that you understand the role played by aggregate and granular metrics both in defining a strategy and in monitoring its execution.

VI. Integration
18 Organizational Leadership Bartlett, Christopher A., and Meg Wozny. "GE's Two-Decade Transformation: Jack Welch's Leadership." Boston, MA: Harvard Business School Case 9-399-150. April 28, 1999.

Questions for Discussion
i. How difficult a challenge did Welch face in 1981? How effectively did he take charge?

ii. What is Welch's objective in the series of initiatives he launched in the late 1980s and early 1990s? What is he trying to achieve in the round of changes he put in motion in that period? Is there a logic or rationale supporting the change process?

iii. How does such a large, complex diversified conglomerate defy the critics and continue to grow so profitably? Have Welch's various initiatives added value? If so, how?

iv. What is your evaluation of Welch's approach to leading change? How important is he to GE's success? What implications for his replacement?