Strategic Management - Fredrickson - 02065

STRATEGIC MANAGEMENT (BA388T)
SPRING 2009

Professor James W. Fredrickson
Office CBA 4.242
Office Hours By appointment
Phone 471-5694
E-Mail James.fredrickson@mccombs.utexas.edu

Course Materials

Text: Porter, Michael E. Competitive Strategy. (New York: Free Press, l998)

Pick up Readings Packet at the Co Op (Note: Due to copyright requirements, the GSB Honor Code
requires that each student purchase a new case packet. It is a violation of the Honor Code to
duplicate case packets).
Course Description
Perspective and Themes

This course is about the creation and maintenance of a long-term vision for the organization.
This means that it is concerned with both the determination of strategic direction and the management of
the strategic process. As such, it deals with the analytical, behavioral, and creative aspects of business
simultaneously.

The course is organized around five themes in strategic management: the role of the general
manager, the components of business strategy, corporate strategy development, managing strategic
change, and the development of general managers.

Our perspective in this course is that of the general manager whose responsibility is the long-
term health of the entire firm or a multi-functional unit (e.g., a major division of a corporation). The key
tasks involved in general management include the detection of and adaptation to environmental change;
the procurement and allocation of resources; the integration of activities across subparts of the
organizations; and, at the most senior levels, the determination of purpose and setting corporate
direction.

General managers, from our perspective, are those managers who are in the position to make
strategic decisions for the firm. Note that such managers are not "generalists" in the sense that they need
to know a little bit of everything, but not very much of anything. To be effective, general managers
need to have in-depth understanding of the generic problems in all the relevant functional areas.
Furthermore, they must be able to deal with problems and issues at the level of the total enterprise and
its relationships with relevant external environments.

Functional specialists can benefit from the general management perspective even though they
may not be general managers. Every function's actions should be coordinated with the overall needs of
James Fredrickson Strategic Management (BA388T) Spring 2008 page 2

the business. In fact, functional specialists are the people on whom general managers must rely to
implement their strategies. Since such functional managers can be subject to suboptimizing pressure,
they too need to understand the general manager's perspective.

Components of the Course

The pervasive concept in this course is that of strategy. We will start our study of strategy at the
business level and examine the challenges of managing a firm competing in a single industry. An
integral part of this study will be an exploration of the components of strategy and how they vary among
settings and situations. In most large and medium-sized firms, corporate strategy is different from
business strategy because of the multiplicity of businesses in which the firm in involved. We will
explore the differences in corporate and business-level (or divisional-level) strategies and the
requirements each places on managers at different levels in the firm. At each level, competitive strategy
issues will be considered.

Successful general managers are highly competent in problem identification and analysis and
have a strong action orientation. One purpose of this course is to provide an environment that will allow
you to hone these skills, while at the same time gain a conceptual understanding of the strategic
manager's task.

Strategic management is more than analysis. To be sure, strategic analysis is an important part
of this course, and we will explore and apply several analytical techniques for positioning a firm or a
business unit within a competitive environment. But, strategic analyses are complicated by the trade-
offs inherent in any situation. These trade-offs reflect the fact that organizations consist of many players
with multiple, competing objectives. When dealing with these tradeoffs, general managers must
confront the judgmental issues involved in establishing organizational purpose and balancing economic
and noneconomic objectives. To the extent possible, in each class we will attempt to balance these
tradeoffs and to test our ideas about the appropriate relationships among them.

Finally, strategic management requires moving beyond analysis and trade-offs into the realm of
strategic action. Once the analytical problem of selecting a business or corporate strategy has been dealt
with, we should know what to do. Knowing how to execute the selected strategy is essential to success.
To the extent possible in each case, we will concern ourselves with the various combinations of systems
(for example, information, control, reward, etc.), organization structures, and people necessary to
execute a given strategy. We will test our ideas about the relationships between strategy and these other
elements as we proceed through the course.

General Flow of the Course

The assignments are detailed in a later section. Please read through them to get an idea of the
specific content of the course and each class meeting.

In general, we will start with single-business or dominant-business companies and proceed to
multiple-business companies. Similarly, we will begin with basic techniques of analysis and then
expand and modify them to fit a range of situations. We will examine many sectors of the economy (for
example basic industries, consumer products, service businesses, hybrids). As we proceed through the
course, the classes and cases used in them will "build" on each other in such a way that the knowledge
and skills gained in analyzing one session can be used in subsequent cases. Throughout the course we
will maintain our concern with both analysis and implementation.

Required Readings

One book is required for the course, and most of its chapters will be assigned at some time
during the semester. In addition, there are often articles that will be used to support conceptual
development for a particular class. Our readings and class discussions will help us understanding how
firms formulate and implement strategies under the impetus of competition, technology, government
action, and other major contextual forces. This in turn requires a deep understanding of the functional
approaches associated with marketing, operations, finance, and human resources. Thus, you will need to
bring what you have learned in other courses and your career to bear in Strategic Management. Part of
our challenge will be to synthesize these functional approaches into overall business-unit and corporate-
level strategies and to concern ourselves deeply with the implementation of the chosen strategies.
Course Objectives

1. Development and reinforcement of a general management point of view -- the capacity to
view the firm from an overall perspective, in the context of its environment.

2. Development of an understanding of fundamental concepts in strategic management: the
role of the general manager, the levels and components of strategy, competitive analysis,
and organizational evolution.

3. Development of those skills and knowledge peculiar to general management and the
general manager's job that have not been covered in previous functional courses.

4. Synthesis of the knowledge gained in previous courses and understanding what part of that
knowledge is useful to general managers.

5. Development of an awareness of the various impacts of external environmental forces on
business and corporate strategy.

6. Practice in distinguishing between basic causes of business problems and attendant
symptoms.

7. Practice in working out business strategies and implementation plans.

8. Development of habits of orderly, analytical thinking and skill in reporting conclusions
effectively in both written and oral form.

9. Familiarity with some of the practical realities of running different types of businesses.

Leadership and this Course

The Texas MBA program is designed to develop influential business leaders. Moreover, the
MBA Program has identified four admittedly broad, yet fundamental pillars of leadership: knowledge
and understanding, communication and collaboration, responsibility and integrity, and a worldview of
business and society. It should be apparent from the above course description and objectives that this
course plays a critical role in helping you develop as an influential business leader. No business leader
in contemporary society can be effective without an appreciation for the perspective and topics that

compose strategic management business and corporate strategy, the environment, competition,
organizational change and implementation, the symbolic effect of top executives, and so on. Therefore,
while it admittedly reflects my bias, I am confident in asserting that no course in the McCombs MBA
program is more important in preparing you to become an influential business leader than this one.
Performance Measures and Feedback

Performance evaluation and feedback will be based on your performance in two different areas
in-class contribution and written work.

In-Class Contribution and Participation

In a typical class session, one or more students will be asked to start the class by answering a
specific question or discussing a specific issue. Preparation of the case (including the assignment
questions) and associated readings should be sufficient to handle such a lead-off assignment. After a
few minutes of initial analysis, we will open the discussion to the rest of the class. As a group, we will
then try to complete the analysis of the situation and address the problems and issues presented in the
case. We will also spend time talking about the implementation of those recommendations and some of
the complexities of effecting change in strategic management situations.

Most general managers spend little time reading and even less time writing reports. The vast
majority of their interactions with others are verbal. For this reason, the development of verbal skills is
given a high priority in this course. The classroom should be considered a laboratory in which you can
test your ability to convince your peers of the correctness of your approach to complex problems, and of
your ability to achieve the desired results through the use of that approach. Some of the behaviors that
contribute to effective class participation are captured in the questions that follow:

1. Is the participant a good listener?

2. Are the points that are made relevant to the discussion? Are they linked to the comments
of others?

3. Do the comments add to our understanding of the situation?

4. Do the comments show evidence of analysis of the case?

5. Does the participant distinguish among different kinds of data (that is, facts, opinions,
beliefs, concepts, etc.)?

6. Is there a willingness to share?

7. Is there a willingness to test new ideas, or are all comments "safe"? (For example,
repetition of case facts without analysis and conclusions or a comment already made by a
colleague.)

8. Is the participant willing to interact with other class members?

9. Do comments clarify and highlight the important aspects of earlier comments and lead to a
clearer statement of the concepts being covered?

10. Does the student ask questions rather than limit participation to responding to others
questions?

The questions above deal with both the process of class participation and (of equal or greater
concern) the content of what you say. As will be noted subsequently, your contributions in class will
constitute a significant portion of your grade in this course. The appendix to this course description
provides additional information on our views of the case method and why it is used so extensively in
Strategic Management.

Because quality class participation figures prominently in this course, the GSB Honor Code
mandates that you not rely on notes, handouts, or cases from students who have taken this course
previously. Thus, and consistent with the previous statement about copyright protection, you should not
use duplicated readings/cases/handouts since these are likely to be "marked up" or highlighted according
to the judgments of others; a critical job of the strategist is to discriminate between meaningful data and
"noise."

Written Assignments

There will be two substantive pieces of written work required for this course. The first, the mid-
term case analysis, will be a group effort, and will be due at the beginning of class on Thursday, March
5
th
. The second will be an individual case write-up that will be due at 9:00 am on Tuesday, May 13
th
,
the first day of exam week.

In preparing the paper, you may of course use exhibits to support your arguments or conclusions.
The results of the application of various analytical tools, for example, are appropriate for exhibits. You
may use as many exhibits as you deem necessary. Be sure to refer to each exhibit in the relevant places
in the paper. Other requirements (e.g., maximum number of pages, format) will be conveyed to you in
class.
Please note: Do not put your name on case write-ups. Instead, only your student number(s), the
assignment title, the date, and the course name should be on the back of the last page. Papers should be
submitted without folders, cover sheets, or any other incidental pages.

Grading Policies

The purpose of grading in Strategic Management, as in all courses, is twofold. One is to evaluate
your performance for purposes of the academic system. The other (and equally important) is to provide
you with feedback on your ability to develop, utilize, and share your ideas and conclusions concerning
the topics and situations covered in the course. To help you do that more effectively, you will be
provided with a criterion sheet prior to the submission of your mid-term case which we will use as a
general framework for providing feedback on your written work.

Your grade for the course will be based on the following components:

30% Written, group case analysis
40% Written, individual case analysis
30% In-class contribution
Other Administrative Details


Since faculty members tend to have somewhat different expectations as to class behavior and
course norms, I'd like to outline a few of my expectations concerning such matters.

1. I plan to be prepared for every class and I expect you to do the same. Since I frequently
call on individuals whose hands are not raised, you should let me know before the start of
the class if some emergency has made it impossible for you to be prepared adequately for
that class.

2. I consider attendance at every class to be very important. Please schedule other activities
(e.g., job interviews) at times other than those during which BA388T meets. In the event
that you do have to miss a class during the semester, I would appreciate it if you would let
me know in advance of that class. Also, if you miss a class it is your responsibility to find
out from your classmates what materials were covered, what additional assignments were
made, and what items may have been distributed in class.

3. I will be happy to discuss the course, your progress, or any other issues of interest to you
on an individual basis. Please see me in class or send an e-mail to set up an appointment.

4. Given the importance of this course, I will do everything that I can to use class time
effectively and ask that you do the same. This will include arriving, starting, and ending on
time.

5. Group work is acceptable and strongly encouraged for purposes of case preparation for
classroom discussion and the mid-term assignment. (I will say more about group
composition on the first day of class.). For the mid-term case assignment, you should not
discuss the case in any way with anyone outside your group before turning in your paper.
The final case write-up is an individual assignment; discussion with others is not permitted.
Any outside assistance on the final case or outside-the-group assistance on the mid-term
case will constitute a violation of the Honor Code.

6. NB: Written work is due no later than the beginning of the class session during which the
case will be discussed. Late papers will be accepted only in the event of personal
emergency.

7. Given the atmosphere that we are attempting to establish in the classroom, I would
appreciate it if you would not eat during class. Also, if you wear a hat to class, please
remove it during our session.

8. As is the case in all strategic management courses, laptops may not be used during class.
Once a class session begins, they must be turned off and closed.

9. All other aspects of the McCombs Classroom Professionalism Policy (e.g., arriving on
time, respecting the views and opinions of colleagues) apply in this class, and should be
second nature to you by now.


Academic Dishonesty
I have no tolerance for acts of academic dishonesty. Such acts damage the reputation of the school and
the degree and demean the honest efforts of the majority of students. The minimum penalty for an act of
academic dishonesty will be a zero for that assignment or exam.
The responsibilities for both students and faculty with regard to the Honor System are described on
http://mba.mccombs.utexas.edu/students/academics/honor/index.asp. As the instructor for this course, I
agree to observe all the faculty responsibilities described therein. During Orientation, you signed the
Honor Code Pledge. In doing so, you agreed to observe all of the student responsibilities of the Honor
Code. If the application of the Honor System to this class and its assignments is unclear in any way, it is
your responsibility to ask me for clarification.
For example, in this class it is a violation of the Honor Code to simply be briefed by a student who
attended the section before yours and present the ideas or insight provided by that student as you own.
Students with Disabilities
Upon request, the University of Texas at Austin provides appropriate academic accommodations for
qualified students with disabilities. Services for Students with Disabilities (SSD) is housed in the Office of
the Dean of Students, located on the fourth floor of the Student Services Building. Information on how to
register, downloadable forms, including guidelines for documentation, accommodation request letters, and
releases of information are available online at http://deanofstudents.utexas.edu/ssd/index.php. Please do
not hesitate to contact SSD at (512) 471-6259, VP: (512) 232-2937 or via e-mail if you have any
questions.

STRATEGIC MANAGEMENT COURSE OVERVIEW

I. The Role of the General Manager

Session 1 Tuesday, 1/20

We'll spend our first class session discussing some basic concepts in strategic management and
addressing broadly the role(s) of the general manager in organizational success.

Readings: Gosling and Mintzberg, The Five Minds of a Manager, Harvard Business Review,
November 2003, 54-63.
Porter, Chapter 1, "The Structural Analysis of Industries"
"Why We Use the Case Method," Appendix, Course Syllabus

II. The Concept of Business Strategy

Session 2 Thursday, 1/22

This session will provide an overview of the processes of strategy identification, evaluation, and
formulation in single business firms. A critical task for any top executive is to develop a strategy for his
or her organization to assure its survival in the face of a changing environment. Critical steps in that
process include identifying the firm's current strategy and its key components, evaluating that strategy in
light of the need for change, and then making the necessary changes. In addition, formulating a
competitive strategy requires an analysis of industry structure, as well as actions that attempt to create a
competitive advantage. These and other issues will be addressed in our discussion of Crown, Cork &
Seal by applying the concepts presented in the assigned readings.

This is the third update of the classic CC&S case. The first covered the company up to 1964. At
that time, Connelly had turned a very sick company around. A major issue for discussion was whether
success would continue. This case describes CC&S up through 1989, and the issue of continued success
is still important. One of the things that makes a general manager's job interesting is that the issue never
goes away. We will be concerned with both business strategy and industry dynamics in this case.
Continuing consolidation in the industry raises the question of whether CC&S should become a bidder
in the apparent sale of Continental Can. Management style also becomes an issue in this case.
Connelly's style is evident from the case. You may want to compare Connelly with other general
managers you will meet in the
cases. Why are some more successful than others? How can managers with such different styles be
successful?

Reading: Porter, Chapter 2, "Generic Competitive Strategies"
Porter, Chapter 3, "A Framework for Competitor Analysis"

Case: Crown Cork & Seal in 1989

Preparation Questions:

1. What are the industry structure and dynamics of the metal container industry?

2. How has CC&S managed to be successful in this industry? What advantages does a firm the
size of CC&S have for competing with American Can and Continental Can? How do you
explain the comparison shown in Exhibit 5 of the case?

3. In some sense, a competitive strategy describes the amount and types of risk that a company
is willing to take. What is CC&S's "risk profile"?

4. What are the major issues that William Avery faces in 1989? What advice would you offer
him about these issues?


Continue the discussion of Crown Cork & Seal begun in the prior session.

Session 4 Wednesday, 1/29

This session provides us with another opportunity to look at features of an industry that have the
potential to shape firms strategy and performance. A critical task for any top executive is to develop a
strategy for his or her organization that insures survival in the face of a changing environment.
Formulating a successful competitive strategy requires an analysis of industry structure, as well as
actions that attempt to create a competitive advantage. Naturally, ones competitors are often trying to
gain a similar such advantage, and with the passage of time, the competitive behavior of firms can have
a profound effect on the evolution and structure of an industry.

This case is the most recent in series of cases that have been written in the past two decades
which chronicle the competition between Coke and Pepsi over nearly a century. During this time, the
two firms have competed for throat share in the worlds beverage market. But even while competing
with one another, there have been extended periods when Coke and Pepsi also managed to experience
annual revenue growth of approximately 10%, as the both benefited from the continuing world-wide
increase in consumption in the carbonated soft drink (CSD) industry.

In more recent years, however, per-capita consumption of CSD in the US has not grown.
Moreover, with the arrival of the 21
st
century, this cola war moved to a new stage and both Coke and
Pepsi have modified their strategies in an attempt to deal with industry changes. By 2006 both firms
were experiencing declining sales of CSD in the US, and were trying to exploit changing trends by
offering alternative drinks. However, it was far from clear that Coke or Pepsi would be able to return to
their glory days, and top executives at both companies were asking whether their long history of growth
and profitability were finally coming to an end. Or goal is to try to answer that question, and in so
doing, understand some of the critical features of this industry and competition.

Readings: Porter, Chapter 4, Market Signals

Case: Cola Wars Continue: Coke and Pepsi in 2006



1. Why, historically, has the soft drink industry been so profitable?

2. Compare the economics of the concentrate business to that of the bottling business. Why is
the profitability so different?

3. How has the competition between Coke and Pepsi affected the industrys profits?

Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing
popularity of non-CSD?


Continue discussion of Coke and Pepsi begun in the prior session.

Reading: Porter, Chapter 5, "Competitive Moves"
Porter, Chapter 6, Strategy Toward Buyers and Suppliers


Developing a competitive strategy in an industry that is early in its development offers some
unique challenges. Industry structure may change rapidly in such situations, and those changes have
implications for the appropriateness of a given competitive strategy. These issues apply in a wide range
of industries, but the pertinent issues may be manifest in slightly different ways. In this session we will
also consider issues of industry structure in an emerging industry, but with an emphasis on a traditional
manufacturing industry. In addition, the benefits and risks of early entry will be discussed, as will the
timing and consequences of strategic actions, and the reactions of competitors.

While the case we are discussing in this session is oldest we will discuss and is set in an unusual
industry (authentic log homes), the lessons have timeless and wide-spread implications. Therefore, as
you read about the situation faced by Sierra Log Homes think about industries and companies that you
are familiar with that have or are facing similar problems. They have been all around us in recent years.

Reading: Porter, Chapter 8, "Industry Evolution"
Porter, Chapter 10, "Competitive Strategy in Emerging Industries"

Case: Sierra Log Homes


1. What is the structure of the log home industry?

2. What problems is the log home industry having?

3. How is the industry likely to evolve?


4. What are the implications for Sierra? What should Cameron Bach do?


Through the late 1990s, Dell Computer Corporation has had 15 years of remarkable
performance. Starting from his dormitory room at the University of Texas at Austin in 1993, Michael
Dell built an industry powerhouse that was soon to become the leading PC maker in the US. With over
26,000 employees and a growing worldwide presence, it was the #2 provider of PCs worldwide, with a
9.1% market share, and $21.7 billion in sales.

Much has been said about the source of Dells success, in particular its business model, in which
it sells to customers direct. However, the key to Dells success may not be as obvious as it first
seems. Therefore, we will discuss the Dell case with the intention of determining the source of this
remarkable success.

Reading: Porter, Chapter 11, The Transition to Industry Maturity

Case: Dell: Selling Directly, Globally


1. What is Dells strategy as of 1999?

2. Why has it worked so well?

3 What is the likelihood that Dells historical strategy will work in China?

4. How, if at all, will it have to be modified?


Reading: Hambrick and Fredrickson, Are You Sure You Have a Strategy?
Academy of Management Executive, November, 2001.
Porter, M. E. What is Strategy? Harvard Business Review, November, 1996

Case: Dell: Selling Directly, Globally

Preparation Questions

1. Characterize Dells strategy using Hambrick and Fredricksons Strategy Diamond framework.

2. Reconsider questions 2 through 4 (from the prior session) in light of that strategy.

Session 9 Monday, 2/17


Edward Jones is one of the largest and most profitable brokers in the financial services industry.
For example, with 3,900 offices it is five times the size of Merrill Lynch, and its 36% ROE during the
1990s was twice that of the average national full-service broker. Therefore, it is particularly surprising
that relatively few people are aware of this firm. To understand the success of Edward Jones, we need
to understand the strategy it pursues. And to do that, we must get beyond superficial, vague
characterizations of strategy, and deal instead with the critical decisions that its executives have made
over the years, and which combine to form Edward Jones strategy.

As noted in earlier sessions, even firms that achieve great success typically have a difficult time
maintaining that success over the long-run. A major source of that difficulty is the environment. The
environments in which most firms operate change over time, and typically bring a variety of threats and
opportunities. Those threats, in turn, may appear in an endless number of forms -- new competitors,
technological changes that obsolesce ones produces and services, changes in consumer tastes -- to
mention just a few. In general, most executives agree that the environments in which they operate have
become increasingly difficult and uncertain. Therefore, their ability to develop a strategy in the face of
uncertainty is more important than ever. And so it is for the top management of Edward Jones.

Reading: Courtney, H., Kirkland, J. and Viguerie, P., Strategy Under
Uncertainty, Harvard Business Review, November-December, 1997.

Cases: Edward Jones
Retail Financial Services in 1998 (simply skim this for major trends)


1. Using Hambrick and Fredricksons Strategy Diamond framework, what is Edward
Jones strategy as of 1998? Which elements of the strategy represent recent changes?
2. Pay particular attention to the Economic Logic of the strategy. Why does the company
have such a high return on equity (ROE)? Can you think of other instances in which a
relatively low-share player in an industry is significantly more profitable than some (or all)
of the higher-share players?
3. Using the framework set forth in the Courtney et. al. article, what uncertainty level does
Jones face?
4. What recommendations would you make to Mr. Bachmann?


Being profitable in an industry characterized by a high level of competition is always a
challenge. However, that is particularly the case when you are one-ninth the size of your largest rival
and the industry offers significant economies of scale. That is precisely the situation in which Airborne
Express finds itself.

In spite of its apparent disadvantage, Airborne has not only survived, in the most recent quarter
its performance has been particularly strong. Revenues for the quarter are up by 29% over the prior
year, and earnings have increased by more than 500%. What we want to do in this session is come to
understand how Airborne has managed survive in its competition against its much larger and more
resource rich rivals, Federal Express and UPS. We also want to consider what management must do if
its most recent success is to continue.

Reading: Creating Competitive Advantage, HBS Note by Rivkin and Ghemawat

Case: Airborne Express


1. How and why has the structure of the express mail industry evolved in recent years? How
have the changes affected small competitors?

2. How has Airborne survived, and recently prospered, in its industry?

3. Quantify Airbornes sources of advantage. NOTE: Randomly selected study groups will be
asked to provide a brief presentation of their analysis and interpretation. I will provide
explicit direction on the kind of analysis you might do as this session approaches.

4. What must Robert Brazier, Airbornes President and COO, do in order to strengthen the
companys position?

Session 11, Tuesday, 2/24

Finalize discussion of Airborne. We will use the balance of session to answer questions raised
thus far in the course, and discuss issues of interest to the class. So bring some questions you want to
discuss.

Session 12, Thursday, 2/26

In this session we will address the sustainability of competitive advantage. We will emphasize
that any such advantage is likely to be sustained only if management recognizes its bases, and works
consciously to defend them. We will come to understand the critical features of sustainable advantages,
discuss the contestability of such advantages, the effect of historical resource allocation decisions on
subsequent choices, and solutions to management myopia.

The Coors Brewing case provides an ideal context for discussing the above issues. The brewing
industry experienced tremendous consolidation through that late 1970s, and at that time Coors was the
lone highly successful regional brewer in and industry dominated by national firms. Our discussion will
focus on the source of Coors' advantage and success, and pose the question of whether it is sustainable.

Reading: Ghemewat, "Sustainable Advantage," Harvard Business Review, 1986
Porter, Chapter 14, "The Strategic Analysis of Vertical Integration"

Case: Adolph Coors Brewing Company


1. Why was Coors so successful prior to 1978? What was its competitive advantage?
Was that advantage sustainable?


2. How has Coors performed since 1978? What explains the change?

3. Given the situation at the end of the case, what actions should Coors management take?


In previous sessions we will have discussed the process of creating a competitive advantage in a
variety of industries and contexts, and have highlighted some of the critical steps in that process. Yet it
is important to recognize that such an advantage is optimally valuable only if it can be sustained over an
extended period of time. In this session we will discuss sustainable advantage using the context of the
world's largest retailer -- Wal-Mart. Competitive advantages can be built on a variety of factors, but
those that are sustainable are typically built on some distinctive competence possessed by a firm and
which are difficult for others to copy, or some first-mover advantage that cannot again be replicated.
Among the issues we will discuss are the multiple sources of sustainable advantages -- those that are
highly tangible and those that are less so -- and the risks inherent in entering business that may not offer
the same advantages. This ultimately gets at the transferability of advantage.

Assignment: Prahalad and Hamel, Core Competence of the Corporation, Harvard Business
Review, 1990.
Hamel and Prahalad, "Strategy as Stretch and Leverage" Harvard Business Review,
1993.

Case: Wal-Mart Stores: Everyday Low Prices in China


1. What, historically, has been Mal-Marts key source of competitive advantage in discount
retailing?

2. How sustainable is Wal-Marts competitive advantage in discount retailing?

3. Should Wal-Mart replicate its domestic model in it original form in China? How
transferable are its historical advantages to the Chinese market?

4. What actions do recommend Wal-Mart take in China? Defend your recommendations.

Session 14, Thursday, 3/5

Mid-term case analysis due (will be distributed in earlier class)


NOTE: GLOBAL TRIPS AND SPRING BREAK WILL TAKE PLACE DURING THESE TWO
WEEKS, SO WE WILL NOT MEET AGAIN UNTIL MID-MARCH

III. Corporate Strategy and the Multi-Business Firm

At this point in the course we will make a transition to corporate-level strategy and focus on multi-
business organizations and the scope of the firm.


This session is the first of three in which we will consider the unique issues of strategy in a firm
that operates in multiple businesses. While managing any business can present a complex set of
challenges, the level of complexity increases markedly as a firm expands its presence beyond a single
industry. Therefore, considerable time has to be spent trying to develop approaches that help executives
manage in such situations.

This case describes the introduction and use of portfolio planning techniques in the Swiss
pharmaceutical and chemical company Ciba-Geigy (now Novartis). These techniques were introduced
in Ciba-Geigy in the early 1980s as part of a broader effort to begin formal strategic planning and
systematize what had previously been an ad hoc approach to resource allocation in this increasingly
diverse company.

Portfolio planning is now a critical component in the strategic management of Ciba-Geigy.
Corporate management uses it to help choose its set of businesses, to allocate resources among
divisions, to set SBU targets and assess performance, and to influence SBU strategies through the
selection of senior managers. This approach has, accordingly, become internalized by all managers at
both the corporate and division levels, where it has become a language of business.

The mandate of portfolio planning at Ciba-Geigy is, however, challenged by a major investment
decision in one of the mature industrial businesses pigments. Its placement in the portfolio as a core
business implies that its goal is to generate cash. Yet the division wants to make a $140 million
investment in clearing up a Superfund site and beginning U.S. production of a very successful
pigment DDP at its Newport Delaware facility. This would violate the target for cash generation set
for the division. Therefore, corporate management must decide whether to break or uphold the practice
of portfolio planning in this instance.

Reading: Collis & Montgomery, Creating A Corporate Advantage, Harvard Business Review,
1998.

Case: Portfolio Planning at Ciba-Geigy and the Newport Investment Proposal


1. Should Ciba-Geigy make the Newport investment? Which option?


2. How does portfolio planning help or hinder the decision?

3. What are the purposes of portfolio planning? Does it satisfy those purposes?


A highly diversified firm operates in multiple businesses, but not all diversified firms are alike.
For example, different approaches to diversification may be manifest in differences in goals, daily
operations, and the role of top management, to mention just a few. Our purpose in this session is to
develop an appreciation for the unique characteristics of this type of organization, and to come to
understand the actions that are needed to make it successful. We will also discuss the role of
acquisitions in organizational renewal, and the task of developing and maintaining a core competence in
such a firm.

The issues identified above will be addressed in conjunction with our discussion of Cooper
Industries. Cooper is a large, successful, diversified firm that has grown by acquisition but which
remains fundamentally an operating company. As you read the case, pay particular attention to the
systems, procedures, and processes that Cooper has installed to enable it to run multiple, seemingly
unrelated businesses as an operating company, yet with limited corporate overhead.

Reading: Haspeslagh and Jemison, "Acquisitions: Myths & Reality," Sloan Management
Review, 1987
Jensen, "The Eclipse of the Public Corporation, Harvard Business Review, 1989

Case: Cooper Industries' Corporate Strategy
Cooper Industries Corporate Strategy (B) to be distributed in class


1. Should Cooper Industries acquire Champion Spark Plugs?

2. What is Cooper's corporate strategy? How does it create value? What are its key
resources?

3. What are the limits of Cooper's corporate strategy?

4. What do you think of Coopers long-term prospects?

Session 17 Monday, 3/31

A particular form of diversified firm, one whose fashion standing tends to come and go, is the
conglomerate. While conglomerates tend to be highly diversified multi-business firms, it is their type of
diversity that makes them unique. In studying Vivendi, we get a glimpse at a venerable French firm that
has extended its reach of business dramatically in recent years, often going against prevailing business
wisdom. Our goal is to first understand the motivations for this approach, and ultimately to reach
conclusions about its wisdom, and the unique challenges that conglomeration poses for top management.


Reading: Goold, M. and Campbell, A., Desperately Seeking Synergy, Harvard Business
Review, September-October, 1998.

Case: Vivendi: Revitalizing a French Conglomerate
Vivendi (B): Revitalizing a French Conglomerate to be distributed in class


1. What is Vivendis corporate vision? How does this firm intend to create value?

2. Is this a good approach for the company? Is this a good approach for the investor?

3. How does the business environment in France affect Messiers plans and his ability to
carry them out?

IV. Strategy Implementation


Few companies have gained as much notoriety in recent years as has Southwest Airlines. Some
of that notoriety has been due to the often unconventional behavior of their CEO Herb Kelleher, while
other stems from their unbroken stream of profitability. Many observers of organizations have studied
Southwest in an attempt to learn what has made them so successful. We will be no exception.

However, not only will we try to determine the source of their historical success, we will grapple
with the unique set of challenges that they face due to the events of September 11
th
, the rise of low cost
competitors, and the subsequent restructuring of the airline industry.

Reading: None

Case: Southwest Airlines 2002: An Industry Under Siege


1. Why has Southwest Airlines been so successful?

2. To what extent have the post 911 changes in the industry disproportionately helped or hurt
Southwest?

3. What recommendations would you make about the issues raised on pages 13 17 of the
case?

4. What is your prognosis for the continued success of Southwest Airlines? What are the
factors most critical to determining that success?



In this session we will use the conceptual framework developed in the prior session to discuss
Yesterday and Tomorrow Organizations. The preparation required for the prior session will carry
over here.


The relationship between the process by which an organization's strategy is developed, and that
used to implement it, is not well understood. However, the relationship has a variety of potentially
important implications which will be discussed in this session. In addition, we will again consider the
role of top-level executives in implementation, the range of factors critical to successful implementation
of any major strategic change, and the unique situation faced by an executive new to the top
management job. By considering these issues in the context of a firm in a declining industry, the
Cleveland Twist Drill case allows us to examine them through the eyes of an executive who is trying to
make strategic changes in an already difficult situation. This is again a timeless case that offers the
opportunity to develop rich insight on one of an executives most difficult and important challenges.

Reading: Porter, Chapter 12, "Strategy in Declining Industries"
Gabarro, "When a New Manager Takes Charge," Harvard Business Review, 1985

Case: Cleveland Twist Drill (A)


1. What are the major problems still facing Jim Bartlett (at the end of the case) at Cleveland
Twist Drill? How serious is the situation?

2. As Bartlett, what is your detailed plan of action for accomplishing the objectives that you
and Ames have for the business?

3. Which of the three options that Bartlett was considering in April 1982 would you pursue?
Why? Are there others that make more sense given his objectives?


In this session we will continue our discussion of strategy implementation by considering the
events subsequent to those discussed in the prior session, with the intent of bringing additional
clarification and understanding to the issues summarized there.

Reading: Kotter, "Leading change: Why transformation efforts fail," Harvard Business Review,
1995

Case: Cleveland Twist Drill (B) (to be distributed in prior class session)


Childrens Hospital and Clinics in Minneapolis, Minnesota is a major tertiary care hospital for
children that was formed in 1994 as a result of a merger of Minneapolis Childrens Medical Center and
Childrens hospital St. Paul. Julie Morath, recently hired as the Chief Operating Officer of Childrens
a major initiative to improve patient safety at the hospital, and begins to transform the entire
organization. She makes many changes in systems and processes, among them a blameless reporting
system that people to communicate confidentially and anonymously about medical accidents without
being punished. Her hope is that the new reporting system will encourage people to surface more errors,
which she sees as a first step in learning how to improve the hospitals processes to avoid similar
failures in the future.

By early 2001 Morath has made significant progress with the safety initiative. However, she
also faces several major challenges. First, some managers are concerned that the initiative undermines
their ability to hold employees accountable for poor performance. Second, some staff members continue
to worry that the safety initiative has increased the hospitals legal exposure. In addition, she has not yet
developed an accurate way to measure the results of the safety initiative and some managers have
expressed concern over her having chosen to hire an outsider to become the new leader of the entire
safety effort.

Reading: A. Edmondson, R.M. Bohmer & G. Pisano, Speeding Up Team Learning,
Harvard Business Review, 2001.

Case: Childrens Hospital and Clinics

Preparation Question:

1. What do you recommend that Morath do and say in the meeting with Mathews parents?

2. What is your assessment of the Patient Safety Initiative at Childrens? In particular,
what do you think about blameless reporting?

3. What is your assessment of Moraths role as leader of the change process at Childrens?
Consider the challenges she faced at each stage of the transformation process and evaluate
her effectiveness in addressing those challenges.

4. Has Morath move prematurely to hire Dr. Eric Knox as the new Director of the Safety
Initiative?

5. Reflect on a time during your career when you were/and were not, comfortable expressing
your views, asking questions, etc. What factors contributed to the atmosphere of openness,
or what aspects of the work environment discouraged you from speaking up?

Session 23 Tuesday, 4/21 NO CLASS


In this session we are exposed to the history and long rivalry of Philips and Matsushita as they
evolve during the pre- and post-war era to emerge as major competitors in the global consumer
electronics industry from the 1970s to the twenty-first century. We are initially exposed to the

capsulized history of Philips, a company that dominated the global consumer electronics industry in the
post-war era. It did this by building highly independent, fully integrated national organizations (NOs)
that were able to sense and respond to local market needs. However, this approach begins to run into
difficulties in the mid 1970s, and for over two decades management struggles to integrate and coordinate
independent NOs to allow them to deliver a more scale-sensitive and competitively coordinated
response to global competitors such as Matsushita.

We also see the worldwide expansion of Matsushita around a very centralized scale-intensive
approach. It is this global scale efficiency and coordinated global approach that allows Matsushita to
overtake Philips in the 1980s. By 2001, however, we see the Japanese company also struggling to adjust
its strategy to pressures from national markets and host governments to respond to their local needs. In
addition, a strengthening yen puts at risk Matsushitas highly centralized sourcing approach, forcing the
company to close some of its central operations. The case provides an opportunity to observe a series of
CEOs in each firm grapple with the process of making needed changes in strategy and organizational
processes over an extended period of time.

Reading: Ghemawat, P., The Forgotten Strategy, Harvard Business Review, November, 2003,
76-87.
Bartlett and Ghoshal, "Matrix Management: Not a Structure, a State of Mind," Harvard
Business Review, 1990

Case: Philips versus Matsushita: A New Century, A New Round


1. How did Phillips become the leading consumer electronics company in the world in the
postwar era? What distinctive competence did it build? What distinctive incompetencies?

2 How did Matsushita succeed in displacing Philips as No. 1? What were its distinctive
competencies and incompetencies?

3. What do you think of the change each company has made to date the objectives, the
implementation, and the impact?

4. What recommendations would you make to Gerald Kleisterlee? To Kunio Nakamura?


This session will continue to focus on several issues raised in the immediately preceding cases
forces and constraining the need for cross-market coordination in order to gain economies of scale and
scope versus local market differentiation and responsiveness. However, it also exposes us to issues of
how global organizations decide on and implement different roles and responsibilities between
headquarters and subsidiaries. In addition, the case provides an example of how a companys
competencies are actually built over time.

Reading: Bartlett, C. & Goshal, S., Tap Your Subsidiaries for Global Reach, Harvard

Business Review, 1986.
Bartlett and Ghoshal, Managing Across Borders: The Transnational Solution, 1989,
pps. 48-55, 57-71.

Case: BRL Hardy: Globalizing an Australian Wine Company


1. How do you account for BRL Hardys remarkable post merger success?

2. What is the source of the tension between Stephen Davies and Christopher Carson?

3. Should Millar approve Carsons proposal to launch Distinto? Why/why not?

4. What recommendations would you make to the organization concerning the conflicting
proposals for Kelleys Revenge and Banrock Stations? What would you decide to do as
Carson? As Millar?

5. From Millars perspective, are these decisions (#3 and #4 above) independent? Why or why
not?


This session will be the first of two in which we will examine the 20 year leadership of General
Electric (GE) by its famed CEO, Jack Welch. It is the latest in a series of cases the have followed
Welchs tenure, and provides an overview of the key actions he took and the initiatives he launched to
revitalize and transform this tremendously diversified company. Beginning in 1981, the case outlines
his radical restructuring of the company in the first part of the decade. It then describes his shift in focus
in the latter part of the 1980s as he emphasizes the need to change culture, values and managerial
mindsets through a several unique initiatives.
Simultaneously, Welch starts expanding the newly restructured company to become much more global.
In the early 1990s Welch continues to challenge old management norms by emphasizing
boundryless behavior and stretch targets, while also pushing new strategic agendas such as an increased
emphasis on moving GE into services. Finally, just as he nears mandatory retirement, he continues to
work on management development while also launching his Six Sigma and e-business initiatives. In
addition to documenting the levers that Welch uses as he leads a two-decade process of transformational
change, the case documents the impact that his actions have on the companys sources of competitive
advantage.

In this and the following session, we have the opportunity to not only understand and evaluate
the actions taken by Welch over two decades, but we also have a unique opportunity to actually see and
heard how his personal philosophy and priorities as a manager evolved during this time. This is made
possible through the use of numerous video interviews conducted between the early 1980s and late
1990s. In combination, the case and videos provide an opportunity to develop unique insight on
numerous issues discussed during the last half of the class the role of top management in leading
change, the process of strategic transformation, and the role of corporate in a diversified company.

Reading: Bartlett, C.A & Ghoshal, S., Changing the Role of Top Management: Beyond Strategy to
Purpose, Harvard Business Review, November December 1994.

Case: GEs Two-Decade Transformation: Jack Welchs Leadership


1. How difficult a challenge did Welch face in 1981? How effectively did he take charge?

2. What is Welchs objective in the series of initiatives that 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?

3. How does such a large, complex diversified company defy the critics and continue to grow so
profitably? Have Welchs initiatives added value? If so, how?

4. What is your evaluation of Welchs approach to leading change? How important is he to
GEs success? What are the implications for his successor?


This session will continue the discussion begun in the prior class.

Readings: Ghoshal, S. & Bartlett, C.A., Changing the Role of Top Management: Beyond Structure
to Processes, Harvard Business Review, January-February, 1995.

Bartlett, C.A & Ghoshal, S., Changing the Role of Top Management: Beyond Systems
to People, Harvard Business Review, May-June, 1995


1. Using the framework/arguments presented in the prior three readings, how would you
interpret what Welch did?


In this last session, we want to review the issues and topics covered in the course, and spend
some time discussing one of the major themes in this course, the job of the general manager. On this
latter point, here we will want to view the GM's job from his or her personal perspective. It will be
important to consider the views that you have internalized so far in your career.


APPENDIX

Why We Use the Case Method
1

The case method is one of the most effective means of management education. It is widely
used in schools of business throughout the world, and this use is predicated upon the belief that tackling
real business problems is the best way to develop practitioners. Real problems are messy, complex, and
very interesting.

Unlike other pedagogical techniques, many of which make you the recipient of large amounts of
information but do not require its use, the case method requires you to be an active participant in the
closest thing to the real situation. It is a way of gaining a great deal of experience without spending a lot
of time. It is also a way to learn a great deal about how certain businesses operate, and how managers
manage. There are few programmable, textbook solutions to the kinds of problems faced by real general
managers. When a problem becomes programmable, the general manager gives it to someone else to
solve on a repeated basis using the guidelines he or she has set down. Thus the case situations that we
will face will require the use of analytical tools and the application of your personal judgment.

Sources of Cases

All the cases in this course are about real companies. You will recognize many of the names of
the companies, although some of them may be new to you. These cases were developed in several
different ways. Occasionally, a company will come to a business school professor and request that a
case be written on that company. In other situations, a professor will seek out a company because he or
she knows that the company is in an interesting or difficult situation. Often, the company will agree to
allow a case to be written.

Occasionally, cases will be written solely from public sources. This is perhaps the most difficult
type of case writing because of the lack of primary data sources.

In those situations where a company has agreed to have a case written, the company must
"release" the case. This means that they have final approval of the content of a given case. The
company and the case writer are thus protected from any possibility of releasing data that might be
competitively or personally sensitive. Public source cases, obviously, do not need a release. Given the
requirement for release, however, it is amazing the amount of information that companies will allow to
be placed in a case. Many companies do this because of their belief in the effectiveness of the case
method.

Preparing for Class

When you prepare for class, it is recommended that you plan on reading the case at least three
times. The first reading should be a quick run-through of the text in the case. It should give you a

1
This note was prepared by Dan R.E. Thomas. It is intended solely as an aid to class preparation.


feeling for what the case is about and the types of data that are contained in the case. For example, you
will want to differentiate between facts and opinions that may be expressed. In every industry, there is a
certain amount of "conventional wisdom" that may or may not reflect the truth. On your second reading
you should read in more depth. Many people like to underline or otherwise mark up their cases to pick
out important points that they know will be needed later. Your major effort on a second reading should
be to understand the business and the situation. You should ask yourself questions like: (1) Why has
this company survived? (2) How does this business work? (3) What are the economics of this business?

On your second reading, you should carefully examine the exhibits in the case. It is generally
true that the case writer has put the exhibit there for a purpose. It contains some information that will be
useful to you in analyzing the situation. Ask yourself what the information is when you study each
exhibit. You will often find that you will need to apply some analytical technique (for example, ratio
analysis, growth rate analysis, etc.) to the exhibit in order to benefit from the information in the raw
data.

On your third reading, you should have a good idea of the fundamentals of the case. Now you
will be searching to understand the specific situation. You will want to get at the root causes of
problems and gather data from the case that will allow you to make specific action recommendations.
Before the third reading, you may want to review the assignment questions in the course description. It
is during and after the third reading that you should be able to prepare your outlined answers to the
assignment questions.

There is only one secret to good case teaching and that is good preparation on the part of the
participants. Since the course has been designed to "build" as it progresses, class attendance is also very
important.

Class Discussions

In each class, we will ask one or several people to lead off the discussion. If you have prepared
the case, and are capable of answering the assignment question, you should have no difficulty with this
lead-off assignment. An effective lead-off can do a great deal to enhance a class discussion. It sets a
tone for the class that allows that class to probe more deeply into the issues of the case.

The instructor's role in the class discussion is to help, through intensive questioning, to develop
your ideas. This use of the Socratic method has proved to be an effective way to develop thinking
capability in individuals. The instructor's primary role is to manage the class process and to insure that
the class achieves an understanding of the case situation. There is no single correct solution to any of
these problems. There are, however, a lot of wrong solutions. Therefore, we will try to come up with a
solution that will enable us to deal effectively with the problems presented in the case.

After the individual lead-off presentation, the discussion will be opened to the remainder of the
group. It is during this time that you will have an opportunity to present and develop your ideas about
the way the situation should be handled. It will be important for you to relate your ideas to the case
situation and to the ideas of others as they are presented in the class. The instructor's role is to help you
do this.

The Use of Extra or Post-Case Data


You are encouraged to deal with the case as it is presented. You should put yourself in the
position of the general manager involved in the situation and look at the situation through his or her
eyes. Part of the unique job of being a general manager is that many of your problems are dilemmas.
There is no way to come out a winner on all counts. Although additional data might be interesting or
useful, the "Monday morning quarterback" syndrome is not an effective way to learn about strategic
management. Therefore, you are strongly discouraged from acquiring or using extra- or post-case data.

Some case method purists argue that a class should never be told what actually happened in a
situation. Each person should leave the classroom situation with his or her plan for solving the problem,
and none should be falsely legitimized. The outcome of a situation may not reflect what is, or is not, a
good solution. You must remember that because a company did something different from your
recommendations and was successful or unsuccessful, this is not an indication of the value of your
approach. It is, however, interesting and occasionally useful to know what actually occurred.
Therefore, whenever possible, we will tell you what happened to a company since the time of the case,
but you should draw your own conclusions from that.

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