Session 1

In Search of the Opportunity

Juan Pablo Vazquez Sampere

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SUMMARY OF KEY CONCEPTS

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Course Concepts

Industry analysis 5 forces

Comparative Advantage Comparing one Capability between two or more

companies

Competitive Advantage Value Chain (to list all Capabilities)

Core Competence Identifying the one (and only one) Capability that increases
the customers Willingess to Pay (it doesnt mean that all the other Capabilities
do not have value or do not increase WTP, but less than the one identified)

Competitive Strategy Differentiation, Cost or Niche (or dual advantage)

Corporate Strategy Related or unrelated diversification

Product portfolio Planning BCG growth- share matrix

Organizational Design Firms architecture that maximizes coordination and

cooperation among the three types of organizational units (product divisions,
country subsidiaries and functional departments)

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ON FIRMS AND INDUSTRIES

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Innovation is not invention and is not research

The principal link between technology and competitive advantage is innovation

Invention: The creation of new products and processes through the

development of new knowledge or from new combinations of existing knowledge

Innovation: the initial commercialization of invention by producing and marketing

a new good or service or by using a new method of production

Research (R)

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Development (D)

Companies that create industries rarely become successful

Product

Innovator

Follower

The winner

Jet airliner

De Havilland
(Comet)

Boeing (707)

Follower

Float glass

Pilkington

Corning

Leader

X-ray scanner

EMI

General Electric

Follower

Office PC

Xerox

IBM

Follower

VCRs

Ampex/Sony

Matsushita

Follower

Instant camera

Polaroid

Kodak

Leader

Pocket calculator

Bowmar

Texas Instruments

Follower

Microwave oven

Raytheon

Samsung

Follower

Fiber-optic cable

Corning

Many companies

Leader

Video games player

Atari

Nintendo/Sony

Followers

There are perfect and imperfect imitators

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Companies that create industries rarely become successful (cont)

Product

Innovator

Follower

The winner

Disposable diaper

Procter &
Gamble

Kimberly-Clark

Leader

Ink jet printer

IBM and
Siemens

Hewlett Packard

Follower

Web browser

Netscape

Microsoft

Follower

MP3 music players

Diamond
Multimedia

Apple (iPod)

Follower

Operating systems
for mobile phones

Symbian

Microsoft

Leader

Laser printer

Xerox, IBM

Canon

Follower

Flash memory

Toshiba

Samsung, Intel

Followers

E-book reader

Song (Digital
Reader)

Amazon (Kindle)

Follower

Inventors fail because of the Appropriability Regime

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Appropiability regime depends on a variety of factors

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Property rights: patents, copyrights, trademarks and trade secrets

Tacitness and complexity of the technology: tacit vs. explicit
Lead- time: time it takes followers to catch up
Complementary resources (also called complementary assets)

The role of the strategist is to reconcile the firm with its context

Firms
Life Cycle

Understand where you are and which

one of your Competences are now
Rigidities

Industry
Life Cycle

Adapt strategy to environment to

identify and exploit opportunities for
Competitive Advantage

The Role of
the Strategist

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The five phases of growth

When your core capabilities become your core rigidities

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The five phases of growth organizational practices and challenges

Phase

Objective

Main problem(s)

Main solution(s)

Creativity

Creating both a product

and a market

Too informal becomes

unmanageable

Business manager to
put firm in order

Direction

Departments created
(marketing, hhrr, etc.)
Business units more
responsibility

Too rigid, no autonomy

Decentralize

Losing control

Initiatives to centralize
to regain control

Explicit communication and

common functions centralized
Social control replaces
formal control

Excess bureaucracy

Special projects

Teams combined across

functions

Organizational pool

Delegation
Coordination
Collaboration
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The result:
Roughly one firm out of ten succeeds at sustaining growth

13% of a sample of 1,854 companies over a 10 year period

16% of a sample of 1,008 companies from 1962 to 1998
9% of a sample of 1,435 companies from 1965 to 1995

5% maintained their growth and 4% were able to reignite growth

Very few companies are successful at corporate renewal

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The result in data from 1980 to 2014, 320 stocks removed from S&P500

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Company was acquired

Merged with other companies in the index
Reincorporated outside the US
Went bankrupt

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To be taken over by a generation of new ones

Industries are revitalized by generational innovations

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The first generational innovation: the emergence of an industry

Dominant Design - product architecture that defines the look, functionality and production
method for the product and becomes accepted by the industry as a whole
Products: cars, etc.
Business models: fast- food (limited menu, no waiter, etc.)

Before Dominant Design firms focus on radical product innovation, after dominant design
they focus on process and incremental product innovation
Example: car racing

The emergence of an industry does not describe when industries are born
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The industry Life Cycle

Cycle time varies significantly across industries

Railroad from 1827 until 1950s
US cars from 1890s until 2000s
MP3 players from 1997 until 2009

Industry life cycle is country specific

Not all industries have this Life Cycle distribution (with or without Dominant Design)

The two major forces that drive industry evolution are

demand growth and the production and diffusion of knowledge
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The industry Life Cycle

Introduction

Growth

Maturity

Decline

Demand

Early adopters

Rapidly increasing
market penetration

Replacement/ repeat
buying; price sensitive
customers

Obsolescence

Technology

Competing
technologies;
rapid product
innovation

Standardization;
rapid process
innovation

Diffused know how;

incremental innovation

Little innovation

Products

Wide variety of
features & designs

Design & quality

improve; dominant
design emerges

Commoditization;
brand differentiation

Differentiation
difficult

Capacity shortage,
mass- production

Over-capacity emerges;
deskilling of production

Overcapacity

Manufacturing Short-runs, skill

& Distribution intensive

------Production shifts from advanced to developing countries

Trade
Competition

Few companies

Entry, mergers and

exits

Shakeout &
consolidation

Price wars &

exits

Key Success
Factors

Product
innovation

Design for
manufacture
Process innovation

Cost efficiency (scale

economies, low cost
inputs)

Low overheads;
rationalization;
buyer selection

Recent discoveries on innovation have challenged

which phase is the most attractive to start a new firm
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ON ENTREPRENEURS

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Concept of entrepreneurship

Set of aptitudes and attitudes oriented towards creating and building

something new, beginning from practically nothing.

It consists of starting, building, shaping, and realizing a company instead of

confining oneself to describing, observing, analyzing or even managing one

It is the talent for detecting a business opportunity where others only see
chaos, disadvantages, contradictions and confusion

It is the ability to put together a start- up team that complements one's own
capacities and talents.

It is knowing how to locate, manage and control funds and resources (often
belonging to others) and to make sure not to run out of money when it is
most needed

It is the will to assume calculated risks, personal as well as financial, and to

do everything possible to ensure that luck is on one's side

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Commonly accepted abilities associated with entrepreneurs

In-depth self-knowledge (knows his/her abilities and weaknesses)

High level of self-esteem (self-confidence)

Strong motivation to reach one's goals (self motivation)

Realist and optimistic view of the future (realism that does not affect optimism)

Excellent planning and organizational skills (self- discipline)

High degree of persuasiveness (transmits passion)

Ability to network (establish networks)

Entrepreneurship can be learned

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Three types of entrepreneurial forms

Corporate Entrepreneurship:
Embodying risk taking, pro-activeness and radical product innovations.

Corporate Venturing:
Creating a new firm owned by the parent organization.
Taking an equity stake in (or entering into a joint venture arrangement
with) a small but innovative or specialist firm, to which it may also
provide management and marketing expertise.
The objective is to gain a specific competitive advantage.

Entrepreneurship
Entrepreneurship is the pursuit of opportunity beyond resources
controlled

Conglomerates followed a different growth strategy from organic growth

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Types of corporate venturing initatives

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Description of the opportunity sector and market

Idea: An innovation that will change something in the future customers' way of
life or work habits (instead of simply improving something that already exists)

Necessity: A need detected in the market that will provide sustainable income
over time.

Customers: They must be easily reached. Must have the possibility of giving
them a trial order before the launch. There should not be too loyal to other
companies.

Value: The client should perceive a substantial added value.

Product life: The average life of the product should be long (it should not be a
perishable product)

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Description of the opportunity sector and market (cont)

Market structure: This should be very fragmented, with many small

competitors in an emerging market

Market size: The potential market should be greater than 100 million euros

Market growth: The market should have an annual growth rate of between 30
and 50% (or more)

Buying potential: This should be high

Market share: Potential attainable market share should be greater than 20%

Costs: It should be possible to be a leader at the cost level. Economies of scale

should exist.

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Description of the opportunity finances

Break- even point: reach positive cash flow in between 18 to 24 months

Payback: less than 2 years

ROI: projected as greater than 25%

Capital: a moderate amount needed with reasonable possibilities for financing

Cash flow: projected at a sustainable level of from 20 to 30% of sales

Growth: expected increase of sales greater than 15- 20% per year

Working capital: small amount needed at the beginning, with gradual increases

R&D: only a small investment required

Gross margin: projected at greater than 40% sustainable over time

Profit: net income after taxes greater than 10%

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Description of the opportunity competitive advantages

Fixed and variable costs: moderately low

Control: over cost, pricing and distribution: moderate to high

Protection of the idea: it is possible and feasible to obtain legal protection

Reaction time of the competition: long- the competition is slow

Legal advantage: a recognized private brand or exclusivity

Network: already in place and strong, including suppliers and other

stakeholders

Entrepreneurial team: motivated, trained and with the necessary skills

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Description of the opportunity management team

Entrepreneurs: a multidisciplinary team

Experience: a great deal of experience in the sector with recent successes

in the market

Integrity: high

Intellectual honesty: the team recognizes and accepts its weaknesses

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Description of the opportunity personal requirements

Objectives and goals: to be able to achieve what one wants and want
what one achieves

Risks: calculated risks and foresseable successes. A low ratio of risk/

reward

Tolerance of frustration and stress: high

Harmony of the development of the idea with the lifestyle of the

entrepreneur

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Description of the opportunity strategical differentiation

Level of correlation is high between the vision of the entrepreneur and the
genuine start-up possibilities, given the conditions in the environment

Service: excellent - the team is committed to excellence in management

Moment to go live: in accordance with market trends (and not against the
current)

Technology: unique and/or difficult to copy

Flexibility: the team is willing to adapt to conditions in the environment

Orientation: always towards the search for new opportunities

Prices: close to those of the leader in the segment

Distribution channels: accessible, with existing networks available

Margin for error: wide - possibility to revise/ adapt the strategy

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OFFICENET (A)

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Poll

Which growth option would you pursue

if you were Freire and Bilinkis?
a) Geographic
b) B2C
c) Internet
d) some combination of the above
e) None of the above

Which growth option would you pursue if you were Carlos Adamo?
a) Geographic
b) B2C
c) Internet
d) some combination of the above
e) None of the above

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Value Chain

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Course Map

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Course Structure

Session 1 In search of the Opportunity

Entrepreneurs, Competitive Advantage and Industries

Session 2 Adaptation to the Context

The environment determines de validity of your growth strategy

Session 3 On Growth
The connection between Innovation and Growth

Session 4 On Strategies: Deliberate and Emergent

Two types of strategy that shape the future of the firm

Session 5 How industries change

When growth strategies are mutually exclusive

Session 6 Disruptive Innovation

Revitalization and threats to the established firm

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GRADING
Class Participation (30%)
Safe Environment
What is good class participation:
Impact on peers thinking
Sound, rigorous, and insightful diagnosis (e.g., sharpening of key issues,
depth and relevance of analysis);
Realistic and effective action recommendations;
Integrative comments (across cases and/or courses);
Evidence of active listening (e.g., relevance and timing of comments) and
constructive critiques of others' contributions;
Evidence that the participant has read the cases and the articles given in
class
Grading (quasi- normal distribution 60% B, 20% A and C, per session):
Absence = 0
A= 9, Excellent, above average
B= 7.5, Good, average
C= 5.5, Poor or hardly participates, below average
D= 4, Non-participation (includes obstructive behaviour)
Group Presentation (30%)
Final exam (40%)
Case to be completed with your group
Open book, it is about reasoning with the concepts

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Group Presentation
Guidelines:
For each group, the presentation in class must have two parts:
Key learning points of the previous sesion applied to a real company
It must be a different company from the one of the case discussed in
class
Practical exercise: Find an anomaly
You can use the same company than the one from the previous part
Follow the template
All the members of the group must present
Total presentation time: 20 minutes + 10 minutes for questions from the audience
Grading:
Professor can give 1 point to all presentations
Process:
All groups that did not present- email before 23:59h of the day of the session.
I will acknowledge the email.
If there is any email missing, your group gets the C
Pick one representative per group
You can give 2 As, 2 Bs, and one C (A= 9, B= 7.5 and C= 5.5)
Optional: You can only make one change (sent with the email from session 6)
The team that presents will get the average but will not know the breakdown
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Group Presentation: Template for the find an anomaly exercise

Step 1: Explain why you choose this company

Step 2: Explain why you chose that content from the previous session
Step 3: 2 paths (pick one or the other but not both):
1. Find an article with evidence that shows the anomaly
Example: Amazon was 10 years in the negative and
needed $8bn of VC money
2. Use your personal life experience
Example: My friend from company X started a distributor
of fast clothing. When Zara came up he went bankrupt

For the personal life experience you need to provide some sort of proof
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Group Presentation: Timetable

Session 2: Business Fun

Session 3: Paper Mates
Session 4: 5 fantastic
Session 5: Ffame
Session 5: La Liga
Session 6: Brioche

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