Management 223 - Business Policy & StrategySpring1999

Phanish Puranam & Michael G JacobidesThe Wharton School

The Wharton School of the University of Pennsylvania

Management 223 - Business Policy & STRATEGY

Spring Semester, 1999

Course Description and Syllabus

Instructors:Phanish Puranam (PP) & Michael G. Jacobides (MGJ)

Office:2061(PP) /2055(MGJ) SH-DH (Management Dept. Suite)

Tel:898-1231 (PP) / 898-1224 (MGJ)

Email:

Class Hours: Tuesdays and Thursdays 12:00 to 1:30pm

Office Hours:By appointment (PP)

Course Overview

This course focuses on strategic management and strategic decision making and examines issues central to the long-term and short-term competitive position of the company or division / business unit. Students are placed in the role of key decision-makers or their advisors and asked to solve problems related to the development or maintenance of the competitive advantage of the firm.

We start the course by looking at strategy at the level of the business unit, which is the fundamental level for competitive analysis. The perspective taken is of a manager in a given unit with particular assets, capabilities and competitive challenges. We look at industry analysis, examine the sources of competitive advantage, and explore generic strategies: How can we analyze the competitive environment, and what are the basic options for business-unit level strategy? What are the bases of competitive advantage? What is the nature of the value chain? Following that, we look at how business units (but also entire corporations) build strengths, by analyzing the nature and value of business and corporate resources and capabilities.

The next module of the course examines strategic management at the corporate level. We first look at the vertical scope of the firm, i.e. the degree of its vertical integration. We also look at how the supply chain is managed in different contexts, and how that ties in with Japanese lean production methods. In looking at supplier selection and outsourcing tactics, we (inevitably) come upon some tough ethical dilemmas where strategy meets social responsibility. We then move to the horizontal scope of the firm, and examine how firms that are present in many markets and industries are managed, and how strategy is made in diversified firms. We then briefly look at the problems associated with corporate governance, and review the managerial & legal/institutional structure of public companies as it relates to strategy. Having a better understanding of corporate structures, we examine how firms can manage their scope to achieve competitive advantage. Under the sub heading of scope, we look first at mergers & acquisitions, and inquire as to when (and for whom) M&A’s are beneficial. We then examine how diversification as a corporate strategy can add value. This module concludes with an analysis of strategic alliances & joint ventures, and the associated promises, problems and challenges.

The last module is devoted to advanced topics in strategic management. The first week looks at the challenges associated with managing in a globalized environment, and at the particular structures and strategies used by multi-national corporations. The second week examines the particularities of fast-changing technological environments, and at how firms can lose big or win big from technological innovations. Strategies for hyper-competitive, dynamic business and technological environments are considered. The third week expands on high-technology issues. The first session examines the evolution of industries, and how firms should structure their strategies to profit from increasing returns and industry life cycles. The second session examines the strategic challenges posed by Information Technology, and in particular by the de-construction of the value chain and the emergence of digital intermediaries. The fourth week in this module looks at the emerging area of knowledge management, whose central tenet is that managing the knowledge resident in the firm is a basic driver of competitive advantage, and examines the particular instance of management consulting firms. Finally, the last session of this module looks at the role of organizational structure, the process of strategy formation, and concludes the course by providing a synthetic perspective on business and corporate strategy.

Readings

Readings for this course are in the textbook and the bulk pack. The bulk-pack is available at Wharton Reprographics. The textbook for this class is Grant, R. M. 1998. Contemporary Strategy Analysis, Third Edition. Cambridge, MA: Basil Blackwell. It is available at the University of Pennsylvania Bookstore.

The readings include both conceptual material and cases. The reading list provides detailed information on the readings to be used in each class session and assignment questions for each of the cases. In addition to thinking about the answers to the specific questions for each of the cases, students should try to identify the reasons why the organization has or has not prospered, and the critical issues facing management. Specify what actions you would take if you were the manager of the firm. You are not required to bring a formal case write-up to class, but should bring your notes on the case with you for your use in class discussion.

Course Requirements and Evaluation

This is a preparation- and reading- intensive class. Most weeks consist of two linked sessions; one session is devoted to concepts and frameworks, while the other is meant for a case discussion .For the first session of each week there are ususally two to three readings. In addition, there will be a short in class exercise, which will complement the theoretical material covered in the session; we will try to apply theory as much as we can to real-world cases. For the second session, there is a case study that illustrates and expands the theory. For some focused topics, we may devote only one session, which will occasionally contain a case. In addition to the material prescribed, there are several optional readings (which you are not expected to have read) that may prove of interest either now, or later in your careers, as references. At any rate, you will need to have thoroughly read the case before coming to class, and also have familiarized yourselves with the analytical frameworks provided in your readings. Please make appropriate time allowances for preparing every session.

Being adequately prepared for class discussion is a key part of this course. On the theoretical side, you will be expected to illustrate and expand the concepts through the in-class assignment and mini-case discussions. As for case studies, you are expected to be thoroughly familiar with case details, and have prepared some answer to the motivating questions provided in the syllabus. Some class discussions may be organized in adversarial format with groups of students assigned to support different points of view. Specific responsibilities for particular questions may be assigned, and students will be asked to participate if they don’t volunteer – orally, or in written form.As for grading, the course requirements consist of class participation, an in class mid-term exam, a group project and an in-class final examination. The course grade will be based on the points you get for these four components, weighted 20%, 20% 20% and 40% respectively.

Class participation: Since this course uses cases extensively, the success of the course depends on effective student participation in class discussions. In evaluating class participation, we shall be asking ourselves first of all, whether the student is well prepared and interested. Beyond that, we shall be concerned with the following questions: (1) Is the student considerate of other class members? (2) Is the student responsive to the contributions of other class members and to the general flow of the discussion? (3) Do the student's comments reflect careful analysis of the case? (4) Do the student's comments contribute to a clearer formulation of the issues in the case? Any in-class written case discussions will constitute part of the participation grade. Please make sure you are regular with attendance.Up to three (justified) absences will be allowed. If, for any reason, a student has to miss more than three, his class participation score will be reduced accordingly. So please take these factors into account when deciding whether to take this course!

Mid - Term Exam: The in-class, closed-book, closed-notes exam will be given during class hours on Thursday, March 4th. A make-up may be made available, but note that the make-up may be more difficult than the normal exam.

Group project: A maximum of four people may group together to prepare a written project (maximum length 20 pages, exclusive of exhibits). The focus of this project is a strategic problem faced by a firm or a group of firms, and your analysis of the situation followed by possible recommendations. A list of indicative topics will be made available in class.

Final Examination: The in-class, closed-book, closed-notes exam will be given during exam hours as per the date in the Calendar, and will consist of two parts, each lasting one hour. The first part will contain objective questions on the courses’ substantive material. The second part will be a subjective appraisal of a competitive situation, which should demonstrate your ability to use the analytical tools and concepts you have been taught in this course correctly.

Grading for all four components and overall course administration will be undertaken by Phanish Puranam, who will be the principal instructor this semester. Michael Jacobides will teach some particular sessions (denoted by MGJ in the syllabus) and may participate in the oversight and grading of some of the group projects.

Who should take this course:

We expect you to have a familiarity with several key business issues, and to have fared well in the introductory management course. Also, some fundamental principles of corporate finance and accounting or even economics may prove to be of help, even if they won't be explicitly used. What is required, however, is that you be comfortable at figuring out what the numbers, figures, and ratios at the "exhibits" of your cases mean. You should be able to understand business statistics, and interpret financial information. If you feel that you have weaknesses in these areas, feel free to consult with the instructors, and we will try to find the best way of dealing with them.

Course outline

Part I - The Concept of Strategy

January 12Introduction and Course Overview

Tuesday

(PP)

Readings:

  1. Grant, Chapter 1: The Concept of Strategy.

2. A Guide to Case Analysis, HBS Press

3. The Return of Strategic Planning, BusinessWeek.

January 14Measuring corporate performance

Thursday

(PP & MGJ)

Readings:

  1. Grant, Chapter 2, Framework for Strategy Analysis
  2. Valuing Companies (from the Economist)
  3. Kay J, Why firms succeed, Chapters 1 (Corporate success and corporate failures)& 2 (Adding Value)

Optional

  1. Kay J. Chapter 13The value of competitive advantage

Discussion Questions:

  1. If strategy is the pursuit of profit, which measure of performance comes closest to being the one you would use to judge the quality and effectiveness of a corporations strategy?
  1. What are the implications of using a given measure of performance to judge corporate strategy.

Part II - Business Level Strategy

January 19Industry Analysis and Strategic Interaction

Tuesday

(PP)

Readings:

1. Grant, Chapter 3: Analyzing the Industry Environment (p. 70-75, skim)

  1. Porter, M., Competitive Moves, Competitive Strategy, Chapter 5

3. Pindyck and Runbenfeld, Chap 13.

Optional

1. Porter, M. - Note on the Structural Analysis of Industries.

January 21

Thursday

(PP)

Case:The Airline Industry 1978-1988 (A) and (B)

  1. How has the structure of the U.S. airline industry changed since the first two or three years after deregulation? What has happened to average industry profitability?
  1. What has happened to each of the five structural forces that determine the intensity of competition?
  1. What role have the strategies pursued by the major airline competitors played in changing industry structure?
  1. Consider the competitive moves of airlines during 1978-1988. How can you describe them in terms of Porter's analysis of competitive interaction? What were the consequences of these moves? With the benefit of hindsight, do they all appear appropriate?
  1. Which is the best positioned of the majors for the 1990’s? What its strong and weak points?
  1. If you were an airline strategist in 1988, what factors would you be looking at? What would be the factors you would look at in order (a) to diagnose the competitive landscape, and (b) to prescribe actions to your client, CEO of Fly-Into-The-Marsh Aviation Co.?

January 26Sources of Competitive Advantage, the Value Chain, and

TuesdayGeneric Strategies

(MGJ)

Readings

1. Grant: Chapter 8, Cost Advantage, and Chapter 9, Differentiation Advantage

2. M. Porter, Generic Competitive Strategies, (Competitive Strategy, Chapter 2)

3. M. Porter, The Value Chain and Competitive Advantage, (Competitive Advantage, Chapter 2.)

Optional Reading:

  1. Grant, Chapter 7 – Nature and Sources of Competitive Advantage,

January 28

Thursday

(PP)

Case: Hudepohl Brewing Company

  1. What is Hudepohl’s Strategy? How does it fit into the generic strategy typology?
  1. Can you analyze Hudepohl’s value chain? Where do you think Hudepohl draws its strengths (and revenue!) from?
  1. Can profits be improved by changing the mix of Hudepohl’s activities? Which activities should be candidates for expansion?
  1. What policy problems and options face Bob Pohl? What are the ones he is focusing on? Do you think that he has framed the situation (and the problem he should solve!) well? Why / Why not?
  1. Should Hudepohl seek to become a major player in the regional (not just Cincinnati) beer market? Why / Why not?
  1. Given your readings, how would you combine the value chain analysis and the generic strategy framework to propose changes to Hudepohl’s strategy? What would your particular recommendations be? Substantiate them!

February 2Resources & Capabilities: Drivers of Business and Corporate Success

Tuesday

(PP)

Readings:

  1. Grant, Chapter 5: Analyzing Resources and Capabilities
  2. Prahalad & Hamel: The Core Competence of the Corporation (HBR)

3. Montgomery and Collis :Competing on resources (HBR)

Optional Readings:

  1. Stalk, Evans and Shulman: Competing on Capabilities (HBR)
  2. Montgomery: Note on Resources & Capabilities (HBR)

February 4

Thursday

(PP)

Case : Nucor at Crossroads

1. What is the industry structure that Nucor faces? What are the structural forces affecting it? What would be your expectation for Nucor’s success based on Porter’s 5-forces model? What is the possible use of Porter’s framework for this case?

2. What is the basis of Nucor’s success? Why do you think that it managed to achieve such a financial and operational performance?

3. What is your assessment of Nucor’s success in the future? What, in particular, is the role you expect to see Nucor’s rivals play? (Be specific!) Which are the threats to Nucor’s success? What are the limits to its expansion?

4. Is Nucor well positioned to be a successful first adopter of the compact strip production (CSP) technology? Why /Why not?

5. What would you do at this critical juncture? Would you adopt? Would you wait for more evidence from the German supplier? Would you wait for competitors to adopt first? Would you not adopt altogether? Substantiate your opinion and prepare to defend it in class.

Part II – Corporate Strategy

February 9Vertical Scope of the Firm: Vertical Integration, Sourcing Decisions, and

TuesdayManaging the Supply Chain – and some Ethical Implications, too…

(PP)

Readings:

1. Grant, Chapter 13. The Scope of the Firm: Vertical Integration

2. Coordinating the Supply Chain, from Womack, Jones and Roos, The Machine that Changed the World, ch. 6.

3. Kay J, Chapter 4 ,Relationships and contracts (Why firms succeed)

Optional Reading:

  1. Dyer, Cho and Chu: Strategic Supplier Segmentation, (California Management Review)

February 11

Thursday

(PP)

Case: Nike and Reebok

1. Do Nike’s sourcing strategies remind you of the GM or the Toyota “model” discussed in the Womack et al chapter? How would you make your judgement?

2. Why did Nike want to keep is South Korean and Taiwanese sub-contractors, even as it moved to mainland China and Indonesia? What kept it from shopping around for the absolute lowest cost bidder?

3. What characteristics of sport shoes outsourcing dictate the way you should co-ordinate your supply chain? Why do you think that a few firms that don’t even manufacture what they sell have such enviable financial performance?

4. Do you think that Nike’s memorandum of understanding is appropriate and sufficient? How does Reebok compare? Do you feel that Nike is / is not responsible for the torturous conditions and meager pay of its subcontractor’s workers? Why / Why not?

5. If you were a manager in Nike or Reebok in 1994, when things started looking harder, and wanted to contain your costs, what would you do vis-à-vis your subcontractors? How “far” would you go? Would supplier management ethics be an issue for your PR Dept, or the CEO? Why? Bring you values to the fore and prepare for a heated discussion!

February 16Horizontal Scope: Managing Multi-business Firms

Tuesday

(PP)

Reading:

  1. Grant, Chapter 15: Managing the Multi-business Corporation

Case:Disney Corporation

1. Examine the evolving mix of businesses Walt Disney is in. What can you observe as for its diversification moves? What was Walt Disney after when making its diversification? How was value added in such moves? What trends can you indentify in the composition of Disney’s portfolio, and how can you account for them?

2. What is it that “brings things together” in Disney? Can you identify any common threads? Also, can you apply any of the concepts we have learnt so far in order to account for Disney’s corporate success?

3. How did Disney’s diverse businesses work together? Where do you see the mechanisms of coordination? How does the corporate level add value to Disney as a whole?

4. What is the role of Headquarters, and how do they manage their businesses? How does the evidence of the case compare with your readings? Do you think that Disney is / is not typical of other multi-business firms? In which way?