Leading Change Pg.

131
Eight Steps to transform Your Organization:
1. Establishing a Sense of Urgency
1. Examining market and competitive realities
2. Identifying and discussing crises, potential crisis, or major opportunities
b. Forming a Powerful Guiding Coalition
a. Assembling a group with enough power to lead the change effort
b. Encouraging the group to work together as a team
a. Creating a Vision
Creating a vision to help direct the change effort
Developing strategies for achieving that vision
a. Communicating the Vision
Using every vehicle possible to communicate the new vision and strategies
Teaching new behaviors by the example of the guiding coalition
a. Empowering Others to Act on the Vision
Getting rid of obstacles to change
Changing systems or structures that seriously undermine the vision
Encouraging risk taking and nontraditional ideas, activities, and actions
a. Planning for and Creating Short-Term Wins
Planning for visible performance improvements
Creating those improvements
Recognizing and rewarding employees involved in the improvements
a. Consolidating Improvements and Producing Still More Change
Using increased credibility to change systems, structures, and policies that
dont fit the vision
Hiring, promoting, and developing employees who can implement the vision
Reinvigorating the process with new projects, themes, and change agents
a. Institutionalizing New Approaches
Articulating the connections between the new behaviors and corporate
success
Developing the means to ensure leadership development and succession
Errors (not doing 1-8 duh)
Error1: Not establishing a great enough sense of urgency
Error2: Not creating a powerful enough guiding coalition
Error3: Lacking a vision
Error4: Under communication the vision by a factor of ten
Error5: Not removing obstacles to the new vision
Error6: Not systematically planning for, and creating short term wins
Error7: Declaring victory too soon
Error8: Not anchoring changes in the corporations culture

Right Game: Use Game Theory to Shape Strategy Pg. 163

Business is a complex mix of both types of games:
1. Rule-based games:
I.
Players interact according to specified rules of engagement (contracts, loan
covenants, trade agreements)
II.
To analyze how other players will react to your move, you need to look
forward far into the game and then reason backward to figure out which of
todays actions will lead you to where you want to end up
2. Freewheeling games:
III.
Players interact without any external constraints
IV.
You cannot take away from the game more than you bring to it (your added
value)

Successful business strategy is about actively shaping the game you play, not just
playing the game you find

The game of business is all about value: creating it and capturing it.
Value Net: Represents all the players in the game and their interdependence.
Vertical Dimension: Customers and suppliers of the company
Horizontal Dimension: Player with whom the company interacts but does not transact.
- Substitutors
- Complementors
Cooperative Way: looking for a win-win
Competitive Way: looking for win-lose
Coopetition: Win-Win (Example. GM creates credit card instead of offering end of the year
rebates)
Changing the Game:
1.
Drawing the Value Net
2.
Identifying all the Elements of the Game (PARTS)
a.
Players: customers, suppliers, Substitutors, Complementors (example. Pepsi, Diet
Coke, low calorie sweetener NutraSweet, HSC)
b.
Added Values: what each player brings to the game (Example: TWA increasing leg
room, Softsoap buying all pump manufacturers)
c.
Rules: structure to the game (example, changing the rules, KIWI airlines)
d.
Tactics: used to shape the way players perceive the game (example, changing
perceptions, New York Times and Daily News)
e.
Scope: the boundaries of the game (example: Sega produces 16 bit system; Nintendo
8 bit)
Traps of Strategy
1.
Think you have to accept the game you are in.
2.
Changing the game must come at the expense of others
3.
Believe you have to find something to do that others cant
4.
Failing to see the whole game
5.
Failing to think methodically about changing the game
6.
There is no silver bullet for changing the game, its an ongoing process.

Chapter 7: Spectrum of Competition and Niche Markets

The Spectrum of Competition

o Perfect Competition (e.g. wheat, lobster fishing) low profit margin
Large number of firms
No product differentiation
Price taking behavior
o Niche Markets (e.g. gas stations, clothing stores)
Product differentiation
Localized competition
o Oligopoly (e.g. automobiles, commercial aircraft) Anything can happen as
far as lower/high profitability
Few firms
Strategic interdependence
Profitability determined by behavior
o Dominant Firm (e.g. computer operating systems)
One/few large firms
More small firms
Pricing leadership
Protected niches/competitive fringe
o Monopoly (e.g. electric utilities) high profit margin
Single firm
high barriers to entry
Market structure: number and relative sizes of the firms in the industry and the
structure of industry demand
o E.g. Buyers think of corn as an undifferentiated product and there are many
corn producers, so the market for corn is competitive
Behavior: Choices incumbent firms make that affect how competitive the industry
will be given its structure
o E.g. If Boeing and Airbus designed their products to appeal to different
market segments, the market for commercial aircraft would be less
competitive than it is when these firms compete for the same customers
Economies of scale reduce unit costs (e.g. international expansion)
Consumer preferences and product differentiation
o Perceptual maps
o Horizontal product differentiation is when buyers disagree about which
product is better
If ice cream & frozen yogurt offered at same price, some people will
buy one and some the other
o Vertical product differentiation is when consumers agree about how to rank
them (perceived quality)
If designer clothes & mass merchandise offered at same price, they
will always buy designer clothes
Product Differentiation: benefit: you eliminate substitutes.
Differentiation and Competition
o Each product competes more intensely with products that are closer to it

o
o

Demand Niches- emerge in pockets of customers whose preferences are

similar to each other and dissimilar to those held by customers in other
pockets
Means that firms can locate their products in a niche where products
appeal strongly to a specific subset of buyers and insulated from
competition by products in other niches
Strategic Group- When demand can be characterized by distinct segments,
firms whose products are in the same niche are in the same strategic group
Niches are often small relative to the demand for the overall product- entire
market is not the relevant market for any individual firm
Size of market segment that the individual firm serves and the # of
other competitors that serve that segment that determine competitive
intensity

Differentiation Softens Competition

o First effect of increased differentiation: increase each firms sales
o Second effect: increased prices
Will charge higher than competitive price but lower than monopoly
price

Price Competition and Market Share

o If a buyer perceives two products are close substitutes to each other, must
have similar/equal prices to split market
o If consumers see products as horizontally differentiated- can capture some
share of market at all prices
If consumers incomes decrease, overall demand
o Buyers willing to pay premium for product they prefer when products are
vertically differentiated

Product Positioning
Locate close to your customers and locate away from your competitors
Creating barriers to entry and taking advantage of first mover status
o First mover advantage significantly affects profits in niche markets
o Primary reason for mobility barriers: time and resources necessary to
establish a position in consumers minds
(Chapter 7 Outline complete)
Chapter 9 - Entry
Why do incumbents dislike entry? Risks to entry an incumbent (duh)
Successful entry implies that incumbents have to share industry profits, and so their
own profits will decline (zero sum game).
As more entrants enter, the combined profits also decline because the industry is
becoming more competitive (Fishback! - Q demanded goes up, P goes down)
Incumbency Advantages = Entry Barriers:
1. Economies of Scale
The firms average costs decline as the firm produces more output.
The fixed cost is spread over larger volumes, to reduce the average cost.
Examples:

Manufacturing: paper mill.

Individual Machine Level: high capacity and increased efficiency due to low downtime
Plant Level - Combining processes to one plant
Firm Level - For example, R&D is a fixed cost if it is centralized in the firm. Improving
one aspect of manufacturing would have an impact on the entire volume produced.
Another example of fixed cost is an advertising campaign.
Equation for Total costs = q x c + A (q- qty, c- var cost, A- fixed cost)
Monopoly - when a monopoly incumbent is earning above normal profit, other firms
will consider entry. If the incumbent has the same costs, a firm entering and
charging lower prices will take the market.
Competition for market share will drive the price below the monopoly price.
Economies of scale can block entry even with the potential entrant is as efficient as
incumbents, because of high fixed costs relative to gross profits.
MES - minimum efficient scale - is the minimum output per period a plant must have
to minimize long-run, total average cost.

2. Cumulative Investment-Learning Economies

When a firm can make cumulative investments that will ultimately reduce current
cost. This concept means that incumbents have more experience in producing and
selling their products than potential entrants.
When a learning curve is moderately sloped rather than steeply sloped it is harder for
an entrant to catch up.
3. Innovation Advantage
When learning produces an innovation that increases the probability that the R&D team will
produce another innovation.
1. Familiar with the technology they invented so they can continue to
build upon it.
2. i.e. digital animation industry built tools to help them later on
4. Promotional Advantage
i.
Repetitive advertising that continues to build on a brand image, reduces
acquisition costs
ii.
i.e. coke and Pepsi advertising for generations
5. Consumer Loyalty
a. advantage over entrants due to brand image, stronger if experience good
(have to try it to know) i.e. Tylenol
6. Switching Costs
Costly for buyers to switch products & network effects = demand side increasing returns
a. Durable productive assets - change suppliers i.e. computer operating systems of their
suppliers, compatibility
b. Training - trained to work with current equipment
iii.
Complementary assets - service contracts for cell phones, sell you the phone
use their contract
iv.
Transaction Costs - costs finding, qualifying, developing relationships with new
suppliers
v.
Loyalty programs - frequent flyer programs encourage you to stick with a
brand
7. Sunk Costs

High Costs for Existing - already built the railroad between 2 towns, no other practical use
for it.
8. Firm Scope
Cost Savings from having a full line of products
i. BIC disposable pens and lighters, demand is also not correlated
ii.
Also costly for buyers to pay for inputs from multiple sources when they
can get from one.
Creating Incumbency Advantage
1. Packing the Product Space
1. markets where consumers have multiple tastes, offer products to fit the range
2. i.e. Beer Breweries have different brands of beer they sell
3. Better to produce less products if it will block entry
4. Must make investment decision before entrants make their move
b. Contract or Vertical Integration
a. Vertical Foreclosure - firm can threaten to block other companies from receiving widgets
b i.e. Spacely Sprockets makes nearly all the sprockets used in the lucrative widget industry.
Wilburts widgets buys Spacely Sprockets and could threaten to not sell sprockets to anyone
else.
c. Signaling
1. Reduce prices to below an entrant's ability to compete to scare them off
b. Antitrust
1. Increase market concentration to prevent entry

Chapter 10 - Creating and Capturing Value in the Value Chain

Value Creation and Value Capture: Interested in how characteristics of segments in the
value chain and the links among them affect the division of value (PIE). Value- the value
of the product to its final consumers minus the opportunity the opportunity cost of the
resources required to produce it.
1. How value is captured:
1. Value Capturing: increasing the size of the piece of the PIE
2. Value Creation: increasing the size of the whole PIE
The value extraction problem faced by the incumbents is to maximize the share they
are able to capture by reducing the share captured by other segments in the chain.
10.3: The Value Chain and Buyer or Supply Power
If a firm sells directly to final consumers, there are no downstream firms. Ex: For
Wal-Mart P&G is upstream and consumers are downstream.
Value Chain: Supplying firms > Incumbent firms > buying firms > final consumers
Supplier Power- the ability to capture PIE by demanding payment in excess of
opportunity cost
A powerful supplying firm can demand a price greater than the minimum price at
which it is willing to supply the input.
A powerful buying firm can demand a price lower than the price it is willing to pay for
the input.

Chapter 13
Tried to follow Todds slides, but he missed a few things in the book. As a
reminder, he did not teach this section because he had to go drive in the rain.
Therefore, the bolded words are whats on his slides.
13.1 Introduction: Businesses go global such as Nike whose founding strategy involved
competitive advantage in the US market by using low-cost, high-quality athletic shoe
production in Japan.
In this chapter, you will learn:
1. Some forces contributing to the increase in globalization
2. key challenges managers face doing the multinational strategy
3. some alternative approaches to meeting those challenges
13.2: Implications for Managers
-A firm must align its organizational design with its strategy
4 ways of looking at globalization
1. Variation - manager caters to the varying tastes of the global market
1. Example: Pharmaceutical company must meet specific country regulations to
market its products
b. Scale - one-size-fits-all so basically a standard product for the whole wide world to
take advantage of scale economies
1. Example: Motorola as a semiconductor manufacturer will market economies of
scale
b. Specialization - a firm gives its regional units autonomy to specialize and
accommodate
c. Uniformity: a firm has a set of common values across all its geographically
dispersed units
13.3 Strategic Gains from Globalization
1. Size of market...basically using your competitive advantage in new
markets.genius! Yet completely obvious. (i.e. First, Walmart saturates the US then
goes to Latin America and Asia)
2. Better positioned....(i.e. Fuel crisis in the 1970s was perfect for Japan because they
were already making fuel-efficient cars)
3. Expand your market to CREATE competitive advantage so basically youre so good
working the international game that you now have an advantage (i.e. the insulin
industry became really expensive due to R&D costs so to achieve enough sales then
the smaller firms had to close up shop so only the global ones remained.)
4. Single Supplier: Sometimes companies prefer a single supplier such as a single
advertiser so then the ad agency gets business by being global itself
5. Lower Costs: Create a cost advantage by going to cheaper countries (technology
companies out-sourcing to Japan who have lower software costs)
1. Warning: you must be at the lowest cost country otherwise you could find
yourself at a competitive DISADVANTAGE
b. Network Externalities/Branding
1. Governments offering better tax rates (i.e Ireland) or subsidies/incentives to
bring business to their country
b. Learning
1. May enter a country to facilitate learning(i.e. Canon opened R&D facility in
Silicon Valley rather than near its HQ in Japan so it could learn from other
technology companies)
b. Enter global market to affect competitors strategic decisions and actions

1. Enter a competitors home market to prevent competitor from expanding

13.4 Globalization of Industries and Economies
1. Why is globalization happening?
1. International Trade Agreements (NAFTA, EU) have lowered trade barriers
since WWII
2. Improvement & emergence of in both international and domestic
infrastructure so as transportation costs decline then firms can take
advantage of cheaper labor costs, for example.
3. International Media created more homogenous consumer tastes so everyone
wants the same thing
13.5 Strategic Challenges
1. Local Responsiveness
2. Global Efficiency
3. Learning in a Global Context
1. risks
1. consumer
2. suppliers/workers
b. What are the trade-offs in local vs. global strategy?
13.6 Organizing to Meet the Challenge
1. Federated vs. Centralized
1. Trade-offs
b. Middle Ground?
1. Regional advantage
2. Locational advantage
b. Location Advantage
Four attributes that foster strong competition
1.
Factor Conditions
Continually improving pools of skills, technology, infrastructure and capital
highly specialized to a business
Selective disadvantages in basic factor input that trigger innovation
2.
Demand Conditions
Core of sophisticated and demanding local customers whose needs anticipate those
elsewhere
Unusual local demand in specialized segments that are present globally
3.
Related and Supporting Advantages
Critical mass of capable local suppliers in those components machinery, and services
most integral to innovation and upgrading in the business
Competitive local companies in industries related by technology, skills, or customers
4.
Firm Strategy, Structure, and Rivalry
Context that fosters the type of strategies and organizational structures suited to
innovation in the industry
Local goals and incentives resulting in sustained investment in the particular forms
needed by the industry
Vigorous competition among a group of locally based rivals.