Strategy 101. December 9, 2005

Transcription

1 Strategy 101 December 9, 2005

2 Objectives Quick introduction to strategy tools for case interviews. How to survive (or excel) at these interviews. My own advice (perhaps unsolicited) on these interviews. Teaser for MGT525 class. V. Brian Viard YALE SOM 2

3 What this is NOT! Comprehensive look at strategy. Substitute for MGT525 class. All-purpose template for any interview (even case interviews). Comprehensive approach for making strategic business decisions. V. Brian Viard YALE SOM 3

4 Interview Case Studies Change in industry structure: New technology or product Entry or exit Deregulation Cost shock Change in firm strategies: By a competitor or firm itself. Something wrong but not sure what what has changed? V. Brian Viard YALE SOM 4

5 Your Objective Help your client respond to this change... In the completely artificial setting of a 15-minute conversation with someone you have never met. V. Brian Viard YALE SOM 5

6 Motivating Example Mileage Plus V. Brian Viard YALE SOM 6

7 Think in Levels Industry Firm Within the firm REMAIN CALM! V. Brian Viard YALE SOM 7

8 INDUSTRY LEVEL TOOL 1

9 Tool 1 5 Forces Barriers to Entry Supplier Power Rivalry Buyer Power Substitutes V. Brian Viard YALE SOM 9

10 Substitutes How does the change affect the availability or goodness of substitutes for industry s product? V. Brian Viard YALE SOM 10

11 Substitutes Example Main substitutes for air travel: driving, bus, train. These are largely unaffected by introduction of United s FF plan. NOT MUCH CHANGE V. Brian Viard YALE SOM 11

12 Supplier Power Does the change increase or lower suppliers ability to extract profits from firms in industry? V. Brian Viard YALE SOM 12

13 Supplier Power Example Main suppliers to airlines: labor, fuel, aircraft manufacturers, airports. These are largely unaffected by introduction of United s FF plan. NOT MUCH CHANGE V. Brian Viard YALE SOM 13

14 Barriers to Entry Does the change lower or raise the barriers to entry in the industry? V. Brian Viard YALE SOM 14

15 Barriers to Entry Example Harder to steal customers away if they have built up miles on incumbent airlines. SLIGHTLY HIGHER BTE V. Brian Viard YALE SOM 15

16 Buyer Power Does the change increase or lower firms leverage over customers? V. Brian Viard YALE SOM 16

17 Buyer Power Example A customer s decision quite different after they have accumulated miles. Less likely to defect from United. Much more locked-in than before. BIG! LOWER BUYER POWER V. Brian Viard YALE SOM 17

18 Buyer Power Extra Credit Subtle point: Business travelers value FF plans the most. Decision maker choosing airline often different than entity paying. EVEN BETTER! V. Brian Viard YALE SOM 18

19 Rivalry Does the change soften or intensify competition among firms in the industry? V. Brian Viard YALE SOM 19

20 Rivalry Example United will compete less aggressively with other airlines for customers that have built up miles. BIG! DECREASE IN RIVALRY V. Brian Viard YALE SOM 20

21 How to Use Means of organizing your thoughts. Fairly comprehensive so don t forget anything big. V. Brian Viard YALE SOM 21

22 Warning! Don t use like a laundry list: Make it a conversation. Not a regurgitation of Porter s 5 forces. Focus on what is important. Ask questions to get information. V. Brian Viard YALE SOM 22

23 Add-Ons Potential Industry Earnings (PIE): Are consumers willing to pay relative to cost of supplying? Is there room for profits? (Webvan) Complements (gasoline stations and mini-marts). Government (spectrum allocation). V. Brian Viard YALE SOM 23

24 Potential Industry Earnings Is consumers willingness to pay great enough to offset costs of supplying? V. Brian Viard YALE SOM 24

25 PIE Example If can restrict awards to flights with excess capacity then marginal cost close to zero. Reason for restrictions. ROOM FOR PROFITS WITH RESTRICTIONS V. Brian Viard YALE SOM 25

26 FIRM LEVEL TOOL 2

27 Tool 2 Firms Positions Who is best positioned to take advantage of (or survive) the change? How will change affect firm s position vis-à-vis its competitors? V. Brian Viard YALE SOM 27

28 Firms Positions Example Consumers want FF plans on airlines that have more destinations. Airlines with large route structures (like United) benefit vis-à-vis smaller carriers. Subtle point: especially attractive to business travelers. V. Brian Viard YALE SOM 28

29 FIRM LEVEL TOOL 3

30 Tool 3 Sustainability Does the change make the firm s CA more or less sustainable: Less or more unique? Less or more imitable? Who is likely to imitate?: Current competitors Large customers/suppliers Potential entrants V. Brian Viard YALE SOM 30

31 Sustainability Example Other carriers (especially large) will likely copy. Will industry structure be made worse or better off?: Carriers start to compete on FF plans or Customers naturally align with particular carriers. V. Brian Viard YALE SOM 31

32 Summary Think in Levels Three main tools: 5 Forces (Industry) Firms Positions (Firm) Sustainability (Firm) Within the firm: if ask about implementation. V. Brian Viard YALE SOM 32

33 Parting Thoughts Don t get discouraged: My experience. Good Luck! V. Brian Viard YALE SOM 33