Faculty
Professors Andrew A. King, Margaret A. Peteraf
Objectives
This course is concerned with the formulation and analysis of business strategy. Business strategy is the set of objectives and policies that collectively determine how a business positions itself to increase its returns and create economic value for its owners and stakeholders. Strategy is concerned with answering two central questions: "What businesses should we participate in?" and "How should we compete?" In this course, you will learn analytical techniques for diagnosing the competitive position of a business, evaluating business strategies, and identifying and analyzing specific business options. These concepts and frameworks will help you to learn to put structure on complex and unstructured problems in business strategy, in order to provide a solid foundation for managerial decision making.
Requirements
Group Project:
The group project is designed to help you learn to apply the tools and concepts covered in this course to a strategic situation that interests you. A detailed handout explaining the projects will be discussed during the first class session. For the project, the following assignments are due:
Tuesday, Feb. 3--Project proposal due
Monday, March 2 and Tuesday, March 3--Presentations in class
Monday, March 2--Project papers due in class at start time
Final Exam:
This will be a timed take-home exam. The exam will cover the entire course and require you to demonstrate your mastery of the analytical tools and frameworks covered in this course.
Tuesday, March 3-Exam distributed in a sealed envelope
Tuesday, March 10-Exam due back by 4:00 pm
Class Participation:
Informed and engaged participation is an essential part of this class and is expected of everyone. Learning opportunities are maximized when you are actively engaged in the class discussion. Active engagement means that you are listening carefully to the comments of your peers and seeking opportunities to make comments that move the class discussion forward. Comments that reflect professionalism and respect for others are important elements of class participation. Some of the key characteristics of valuable class participation are as follows:
Relevance: Are your comments clearly related to the case and to the comments of others? Does your comment stick to a subject or does it wander?
Advancement: Does your comment move the class discussion forward? Does it take the discussion farther and deeper than the previous comments or does it reiterate past comments?
Fact-based: Have you used specific facts from the case and the readings to support your analysis? Do the facts clearly support your analysis or do they leave open other interpretations?
Logical: Is your reasoning consistent and logical or are there gaps in your logic? Do you use concepts from the readings and lectures correctly?
You are expected to be well prepared for class particiation every day. If for some reason you are not prepared for a particular class session, let me know before class. If you "wing it" during class without adequate preparation, this will result in a substantial penalty to your class participation grade.
Materials
All of the materials for the course are contained in the course packet. If you wish to purchase an additional textbook on your own, the syllabus contains readings from the following textbooks:
Besanko, David, David Dranove, Mark Shanley and Scott Schaefer. 2006. Economics of Strategy, 4th ed. John Wiley & Sons: New York.
Grant, Robert M. 2008. Contemporary Strategy Analysis: Concepts, Techniques, Applications, 6th ed. Blackwell Publishers: Malden, MA.
Attendance Policy
Class discussion works well only if you are in class and actively participating. You are expected to attend every class session. It is your responsibility to notify me if you will miss class. An illness or emergency is an excused absence. It is Tuck School policy that missing a class for an interview is not an excused absence. It is your responsibility to work with recruiters and career services to minimize these kinds of disruptions. If you must miss a class session for an interview, it is your responsibility to notify me by e-mail in advance of class indicating the name of the firm and the reason for the absence. This includes the Visiting Executive sessions, for which attendance is mandatory. You may miss up to two classes due to recruiting without penalty to your class participation grade, provided you notify me in advance. More than two unexcused absences for recruiting or other reasons will result in a penalty to your class participation grade.
The Academic Honor Principle
I take the Academic Honor Principle very seriously and have very clear policies for this course:
Student Responsibilities
For the class to work well, and for you to benefit from it to the greatest possible extent, preparation for each class meeting is essential. All students are expected to arrive at class prepared to discuss the readings and case assigned for that day. Discussions of the readings and cases will include cold calls.
Miscellaneous
Students with learning disabilities or other special needs should contact me at the beginning of the course to arrange for any accommodations that may be necessary.
A copy of all PowerPoint slides and completed spreadsheets for each class will be available after class in the course folder on the Tuck network.
Office Hours
My office hours are Tuesday, 1:30-3:00 pm. You can also make an appointment to meet with me at another time by contacting me directly via email, phone, or at the end of class.
Grading
The graded components of the course are as follows:
Individual Final Exam 40%
Group Project 30%
Class Participation 30%
Schedule
Tuesday 01/06
M. Porter, "What is Strategy" (HBR #96608)
Besanko, Dranove, Shanley, & Schaefer, Economics of Strategy, "Introduction: Strategy and Economics", pp. 1-7.
Class Preparation Questions:
According to the readings, what are the key issues in Strategy? And what does Economics have to do with Strategy?
What is the luxury goods industry?
Who are the best positioned players in the competitive landscape of luxury goods industry back in 1990? Why?
What did De Sole do to reposition Gucci in the 90s? And what did he achieve?
Case: Gucci Group, Harvard Business School Case #9-701-037
Wednesday 01/07
M. Porter, "The Five Competitive Forces that Shape Strategy," Harvard Business Review, January 2008.
Case: Cola Wars Continue: Coke and Pepsi in 2006, HBS 9-706-447.
Class Preparation Questions:
Use a 5-forces analysis to analyze the economics of the concentrate business. Put the soft drink producers in the center of the diagram, as the industry incumbents/rivals. Identify the key underlying structural determinants of each force, and explain their implications for the relative power of each competitive force. Based on your analysis, how attractive is this industry? That is, how high is the profit potential of industry competitors? What are the key elements of your analysis of the underlying structural determinants that lead to this conclusion?
Next use a 5-forces analysis to analyze the economics of the bottling business. Here the bottlers will be in the center of the diagram, as the industry incumbents/rivals. Perform the same analysis as in question 1 above.
Compare the economics of the concentrate business to the economics of the bottling business. Why is profitability so different?
How has competition between Coke and Pepsi affected the industry’s profits?
What challenges face these companies today? How can 5-forces analysis help you answer these questions?
Monday 01/12
Dixit and Nalebuff, Thinking Strategically, "Anticipating Your Rival's Response," p. 31-44.
Case: The Ready-to-Eat Breakfast Cereal Industry in 1994 (A) (HBS #9-795-191)
Class Preparation Questions:
What changes in the industry have led to the current crisis? Why have private labels been able to enter successfully?
Should General Mills have reduced its trade promos and prices in April 1994? Why or why not? (Answer this question before doing the following questions.)
How are the private label producers likely to respond to General Mills’s move? Understanding the economics of private label profitability is important in answering this question. You can use the data in Exhibit 2 on the branded cereal producers as well as information in the text of the case about the costs and margins of the private label producers. If you opt to use a spreadsheet, the worksheet the RTE Excel file provides a starting point. The worksheet reproduces Exhibit 2 from the case, which contains a value chain of the costs and margins of the branded cereal producers.
Prepare a game tree using the reading, where the initial move is General Mill's reduction in trade promos as the initial move. (We will focus only on the promos and ignore the price reduction to simplify the analysis). Your game tree should include: 1) who the players are (which firms), 2) the sequence in which they are likely to move, 3) the likely set of possible moves at each stage of the game, 4) the general direction (i.e. positive or negative) of the payoffs to each player at each stage of the game. Note that you will NOT be able to place dollar amounts on the payoffs, but you can make predictions about whether the payoffs will be positive or negative.
When you have finished the game tree, reflect on what you have learned from this exercise. In light of what you have learned, do you still agree with your answer to question 2? Why or why not?
Tuesday 01/13
Grant, Contemporary Strategy Analysis, "Types of Competitive Advantage”, pp. 218-220.
Grant, “The Nature of Differentiation and Differentiation Advantage”, pp. 242-245; 248-249.
Case: Ducati (HBS #9-701-132)
Class Preparation Questions:
How would you characterize Ducati’s strategy in terms of the types of generic strategies described in the first reading above?
What were the main elements of Ducati’s generic strategy in terms of the characteristics discussed in the Grant readings?.
The exhibits at the end of the case contain important information about the generic strategy that Ducati used to increase its profits (especially EBITDA). Exhibits 1 and 12 enable you to assess the contribution to the increase in EBITDA due to decreases in costs (COGS) and increases in SG&A since Minoli took over in 1996. (Recall that Total Revenues – Gross Profits = COGS.) For the purposes of this exercise, you can assume that Total Revenues include revenues only from motorcycle sales and that Other Operating Income includes Ducati’s income from other activities. What does an analysis of these data tell you about some of the key elements that contributed to the success of Ducati’s strategy? If you opt to use a spreadsheet, the worksheet in the Ducati Excel file contains the data from Exhibit 1, with COGS calculated for you. The spreadsheet also contains supplemental information on revenues in 1996 that is not in the case, as well as data for 1996 from Exhibit 12.
How can Ducati continue to grow? Should they consider entering new markets? If so, which ones and why?
Grant, "Bringing it All Together: The Value Chain in Differentiation Analysis," pp. 255-259 (skim).
Besanko et al., "Value Created," pp. 367-368
Tuesday 01/20
Brandenburger and Nalebuff, Co-opetition, “What Game Theory Has to Offer”, pp. 7-8.
Brandenburger & Nalebuff, Co-opetition, “Added Value”, p. 45, 47-79.
Case: Formula 1 Motor Racing. Harvard Business School Case 9-703-412
Class Preparation Questions:
Based on the readings, how does Added Value differ from Total Value Created. (Refer to the Ducati slides to review this last concept.)
What were the key steps in Ecclestone’s transformation of Formula One (F1) into a multi-billion dollar global sporting spectacle?
Why all the actors around it (from autoracers to fans) continue to flock to F1 races?
What are the key challenges facing F1 in 2002? And what should mr Ecclestone do to avoid them?
Wednesday 01/21
Case: "De Beers Consolidated Mines Ltd.(A)",(HBS #9-391-076)
Class Preparation Questions:
A key part of DeBeers' business is as the central selling organization (CSO) for diamonds. How does the CSO work in terms of the nuts and bolts of the business? Use Exhibit 4 in the case to understand who receives payments for what.
Historically, how did DeBeers create economic value along the vertical value chain (from suppliers to buyers)? How did they increase their own Added-Value?
What were the potential threats to De Beers's ability to capture value from buyers and suppliers? How did De Beers manage these threats? You can use the data in Exhibits 3 and 4 of the case to help answer this question with regard to suppliers. In particular, it is useful to assess how important the different suppliers were and to calculate how much money the CSO made from each supplier. (It is difficult to do this calculation for Botswana, but you can do this for South Africa, Namibia, the Soviet Union, and the other small producers as a group.) What does your analysis tell you about supplier threats to De Beers's ability to capture value and how De Beers managed these threats? If you opt to use a spreadsheet, the worksheet in the De Beers Excel file reproduces information from Exhibits 3 and 4 in the case as a starting point.
In more recent years, De Beers also has sought to brand its high-end diamonds and open De Beers retail outlets. Would you recommend this strategy for De Beers? What is its likely effect on De Beers’s ability to capture value? What is your assessment of De Beers’s other recent strategic moves?
Monday 01/26
Optional: In lieu of the regularly scheduled class session, Professor Verona will hold special office hours from 8:30-11:45am for any groups that would like to discuss their projects. Project proposals are due in class on Tuesday, February 3rd.
Tuesday 01/27
Brandenburger & Nalebuff, Co-opetition, “Co-opetition“, pp. 11-39.
Case: Power Play (A): Nintendo in 8-bit Video Games (HBR #9-795-102)
Case: Power Play (B): Sega in 16-bit Video Games (HBS #9-795-103)
Class Preparation Questions:
Note: These cases do not lend themselves to detailed numerical analysis. Exhibit 1 in the back of the (A) case is helpful in understanding Nintendo’s strategy, however.
Draw a diagram of Nintendo’s Value Net based on the information in the (A) case. Analyze the relationships between Nintendo and the other players in its Value Net in order to answer the next question.
What strategies and actions did Nintendo take that led to their very high profits? What do the concepts of Added Value and the Participation Constraint tell you about how Nintendo managed its Value Net so successfully?
The (B) case explains Sega’s entry into the industry. How should Nintendo have responded to Sega’s initial entry in terms of pricing, the 16-bit technology, and its relationships with other players in its Value Net? Why didn't they enter the 16-bit market earlier? Consider Nintendo’s possible options after Sega's entry in light of their effect on Nintendo’s Added Value. What advice would you have given Nintendo at the time?
Monday 02/02
There is no class today at the regularly scheduled time. Instead, there is a required special session at lunchtime today. Note that there is an additional required special session at lunchtime tomorrow, as well as a class session at the regularly scheduled time.
Tuesday 02/03
Note: Project proposals are due at the start of class. The proposals should be typed, approximately one page, single spaced. Briefly describe the project topic, the issues you plan to investigate, and the course frameworks that you plan to use.
Grant, “The Prisoners’ Dilemma”, p. 103
Grant, “Competitor Analysis”, pp. 107-110
(Skim) Besanko, et al., “Exit Promoting Strategies”, pp. 321-324
Case: Leadership on Line: Barnes and Noble vs.Amazon.com, Harvard Business School Case # 798063
Class Preparation Questions:
NOTE: Some of you may know more about Amazon and B&N than is included in the case. Set this additional information aside and rely only on the information in the case in preparing for class. At the end of the class session, we will discuss additional information about Amazon and B&N that you may have.
Identify the structural characteristics of the Bookselling industry
How could B&N achieve a leading position before the advent of Amazon?
Assess B&N attack and evaluate Amazon response
Will this head to head competition be sustainable in the long run? If yes why? If not what should the two firms do in order to better adapt their business models?
Tuesday 02/03
Monday 02/09
No strategy class at the regularly scheduled times this week. Use the time to get a jump on your projects, but note that there is a required speaker session on Thursday at noon.
Tuesday 02/10
No strategy class at the regularly scheduled times this week. Use the time to get a jump on your projects, but note that there is a required speaker session on Thursday at noon.
Thursday 02/12
Special Required Session: 4:30-6:00pm (Cook Auditorium). Visiting Executive: Peter Brabeck-Letmathe, chairman Nestle
Monday 02/16
Collis and Montgomery, “Competing on Resources.” (HBR #95403)
Besanko et al., “Sustainable Competitive Advantage”, pp. 424-438.
Grant, “The Resources of the Firm," pp. 130-134.
Case: Wal-Mart Stores Inc. (HBS #9-794-024)
Case: Organic Growth at Wal-Mart (HBS #9-707-498)
Class Preparation Questions:
Do Wal-Mart’s resources and capabilities provide it with a competitive advantage? To answer this question, you will need to identify Wal-Mart’s resources and capabilities using the Grant reading. Then you will need to assess whether Wal-Mart’s resources were “competitively superior” to those of its competitors at the time of the case. To help answer this question, compare the expense and cost items for Wal-Mart and its competitors in discount retailing. Note that exhibit 6 in the first case provides COGS and total operating expenses (other than COGS) for Wal-Mart and for competitors as a group. There also are data in the text of the case that provide information about individual cost and expense items for Wal-Mart and its competitors. If you opt to use a spreadsheet, the worksheet in the Wal-Mart Excel file provides a starting point.
Based on the information in the first case, how sustainable is Wal-Mart’s competitive advantage? Use the tests for sustained advantage in the Collis and Montgomery reading, as explained in the lecture on this topic, to make this assessment. Be sure to address the issue of “isolating mechanisms” (from the Besanko et. al. reading) in your answer. Explain your reasoning and back up your explanation using facts from the case.
Should Wal-Mart offer organic foods in its stores? Why or why not?
Tuesday 02/17
Collis & Montgomery, Corporate Strategy, “An Introduction to Corporate Strategy”, pp. 1-13.
Grant, “ Diversification Strategy”, pp. 400-403.
Case: Newell Company: Corporate Strategy, (HBS #9-799-139)
Class Preparation Questions:
Note: Answer the first three questions with respect to what Newell Company was like, prior to the acquisitions of Calphalon and Rubbermaid.
Which of Newell’s resources were corporate-level resources? (Refer to the lecture in the previous class for a definition of corporate resources.) Which of its resources and capabilities were shared or transferred across its divisions? How did these resources and capabilities create economic value?
At the time, did Newell have a corporate advantage? (Refer to the lecture in the previous class regarding how to test for corporate advantage.) How did the parent company add value to the businesses within its portfolio? What evidence can you provide?
What challenges faced the company in the late 1990s? In this context, would the acquisition of Calphalon help Newell to obtain, improve, or sustain a corporate advantage? Would the acquisition of Rubbermaid help Newell to obtain, improve, or sustain a corporate advantage? To help answer these questions, calculate ROS (return on sales), COGS as a percent of sales, and SG&A as a percent of sales for the three companies (Newell, Calphalon, and Rubbermaid). The optional worksheet in the Newell Excel file (in the Course-Files folder) provides a starting point. What do these calculations as well as other case data tell you about the challenges that these acquisitions present for Newell?
In applying the cost-of-entry test to these acquisitions, is there quantitative evidence that lends support to your assessment regarding whether or not Newell should have undertaken these acquisitions?
In the past few years, Newell Rubbermaid has adopted a strategy that emphasizes products with high profile brand names, such as Sharpie pens. Evaluate the pros and cons of this strategy in light of Newell’s resources and capabilities.
Thursday 02/19
Monday 02/23
No class, due to the special required session last Thursday.
Tuesday 02/24
Ghemawat, Pankaj. “Building Strategy on the Experience Curve.”, (HBR reprint #85206)
Case: Global Wine Wars: New World Challenges Old (A), Harvard Business School case # 9-303-056
Class Preparation Questions:
How were the French able to dominate the worldwide wine trade for centuries?
In the face of this two century history of dominance in the world wine trade, how were the New World producers able to expand their market share so rapidly in the 1990s?
How should the French respond to their situation?
Monday 03/02
Note: Attendance is mandatory, even if you are not presenting on this day. Your project papers are due in class at the start of the class.
Tuesday 03/03
Note: Attendance is mandatory, even if you are not presenting on this day. Today is also the last day of class.
Tuesday 03/03
Exam
The exam will be distributed to your mailboxes in a sealed envelope, by noon on the last day of class March 3rd. The exam is due back on or before March 10th at 4pm. There will be a box for your exams outside the office of my assistant, Annette Lyman, 310 Tuck Hall.
Tuesday 03/10
Exam
The exam is due back before March 10th at 4:00 pm. There will be a box for your exams outside the office of my assistant, Annette Lyman, 310 Tuck Hall.
