Description
This document about strategic management instructor dr. steve hummel, p. eng.
Strategic Management
BU481 Class 9
Instructor: Dr. Steve Hummel, P. Eng.
1
Dr. Stephen J. Hummel, P. Eng.
“The best CEOs I know are
teachers, and at the core of
what they teach is strategy.”
Michael Porter
S
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r
a
t
e
g
i
c
M
a
n
a
g
e
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t
Agenda
? Instructor evaluation
? Final Exam
? New Ventures & Corporate Renewal
? Novelis
2
Dr. Stephen J. Hummel, P. Eng.
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Final Exam
? For the final exam we will be identifying the
case that will be used 72 hours before the
exam. In the exam we will pose specific
questions that we want answered.
? This approach is "friendly" to our students
who have English as a second language. We
have also said that it is open book.
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
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t
Understanding Derivatives -"A Primer“
Heidi is the proprietor of a bar in Detroit .She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to
patronize her bar.
- To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
- Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers' loans).
- Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon
she has the largest sales volume for any bar in Detroit .
- By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases
her prices for wine and beer, the most consumed beverages.
- Consequently, Heidi's gross sales volume increases massively.
- A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's
borrowing limit.
- He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral!!!
- At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.
- These "securities" then are bundled and traded on international securities markets.
- Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb!!!, and the securities soon become the hottest-selling items for some of the nation's leading brokerage
houses.
- One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on
the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.
- Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
- Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.
- Overnight, DRINKBOND prices drop by 90%.
- The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the
community.
- The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.
- They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
- Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over
by a competitor, who immediately closes the local plant and lays off 150 workers.
- Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached
cash infusion from the government.
- The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar.
Now do you understand?
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New Venture Creation
? Entrepreneur
? Two types, Opportunistic & Craftsperson
? Inside a firm is called “Intrapreneur”
? It is all about understanding and capturing
opportunity
? Orthodox views create blind spots or frozen
preferences, entrepreneurs use insight to remove
those constraints
? There is lots of uncertainty so careful
experimentation can be used to drive that away
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Maybe Some Frozen Preferences?
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t
Resources
? Usually very limited
? Requires flexible staff for startup
? Talented but expensive people are usually acquired
once the business is stabilized
? Breakeven is a crucial calculation
? “Bootstrapping” is a smart way to get started
? Low upfront capital requirements
? Short sales cycles (under a month)
? Short payment terms (under a month)
? Recurring revenue
? Word-of-mouth advertising
S
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Organization
? Needs to be fluid initially but requires structure and
formalized responsibilities at some point
? Plans are crucial, along with metrics, key plan is an
exit strategy to capture the value of the firm
? Professionalization of management and leadership
are always issues in entrepreneurial firms, if only for
timing reasons, i.e., when & what?
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“Dirty Little Secrets”
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New Firm Stages
? Stage I
? No revenue, little/no expense history, usually indicates and incomplete team
with an idea, plan, & maybe some product development
? Stage II
? No revenues but some expenses indicating that product development is
underway
? Stage III
? Venture shows revenues but is still operating at a loss
? Stage IV
? Venture has revenues & is operating profitably
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Intrapreneurs
? Usually have more resources than an entrepreneur but may not be as
efficient as using them because “they are there”
? 10 KSFs for intrapreneurship (first 7 for all cases, last 3 for big firm);
? Put the interests of the new venture first (decouple personal interest)
? Hire motivated people (urgency is everything, unusual in a big firm)
? Build on what exists (constraints with respect to existing resources & arenas)
? Do not appear to threaten existing products/services (negative perspective)
? Be ready to co-operate (fit into the control systems)
? Have a powerful sponsor (protection, advice, & insight)
? Anticipate & jump on tectonic shifts (major changes inside or outside mean an
opportunity to see if the startup can provide a solution)
? Get freedom to operate (removes impact of bureaucracy, separate business helps)
? Get a separate location (foster esprit des corps, protects resources, & avoids
explanations)
? Attract little attention (low profile=uninterrupted progress)
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a
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Corporate Renewal
? Problem=declining performance
? Causes
? External
? Political
? Economic
? Sociocultural
? Technological
? Ecological
? Legal
? Internal
? Management preferences
? Organization
? Resources
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Hofer Turnaround Strategies
Breakeven
point
Profit/Loss
Corridor
Variable
Costs
Fixed
Costs
Capacity
Total Costs
Total Revenue
Figure 1
Deciding on the Type of Operating Turnaround Strategy to Follow
Normal
Operating
Corridor
Cost
Cutting
Strategies
Combination
Strategies
Revenue
Increasing
Strategies
Asset
Reduction
Strategies
Source: Hofer, 1980, Turnaround Strategies, Journal of Business Strategy, 1 (1)
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Bibleault Turnaround Stages
Figure 2
Stages in the Turnaround Process
Turnaround Response: The Turnaround Response refers to actions
taken by a firm in response to the occurrence of a turnaround
situation. The overall response is considered to consist of two
overlapping stages; the Retrenchment Stage and the Recovery Stage
Retrenchment Stage: The initial response
to turnaround situations for many firms
consists of reductions in costs and assets.
The primary objective for these reductions
is to stabilize the performance decline. The
Retrenchment response, if persistent, is
observable as changes in income and
balance sheet accounts.
Objectives:
Survival
Positive Cash Flow
Strategies:
Liquidation
Divestment
Improve Operational Efficiency
Product Elimination
Head Count Cuts
Recovery Stage: As a firm Achieves
stability it begins to emphasize a set of
activities that represent the
implementation of the firm’s long term
strategy. The intensity of the recovery
response relates to the degree of strategy
change present in the overall recovery
response.
Objectives:
Long Term Profitability
Growth in Market (often objectives
designed to earn an acceptable ROI and
achieve product improvement)
Strategies:
Market Penetration
Re-concentration/Segmentation
New Markets
Acquisitions
New Products (often with operating
strategies designed to continue cost
control and maximize asset utilization)
Source: Bibeault, 1982, Corporate Turnaround: How
Managers Turn Losers Into Winners! Maryland: Beard
Books
S
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Hambrick, Schecter Model
Development Growth Shakeout Maturity Saturation Decline
Stage of Product/Market Evolution
Strong
Average
Weak
Very
Weak
Relative
Competitive
Position
Figure 3
Assessing Current Strategic Market Position
Source: Hambrick, Schecter, 1983, Turnaround Strategies for Mature Industrial Product Business Units, Academy of
Management Journal, Vol. 26 (2)
Share
Increasing
Turnaround
Strategies
Share
Increasing
Turnaround
Strategies
Niche Marketing Turnaround Strategies or Liquidation Strategies
Segmentation
Turnaround
Strategies
Market
Concentration
and
Asset
Reduction
Turnaround
Strategies
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Situations of Misfit
? Continual corporate renewal
? Proactivity means current negative financial impact is low
? Challenge is motivating internal stakeholders because of good current firm
performance
? Transformation
? Financial downturn, requires significant action, identify misfits and eliminate
them
? Challenge again is motivating people again because viewpoint is that de
? Turnaround
? Very serious decline, radical action needed to return to profitability
? Challenges include lack of resources, internal constraints, & unfavourable
industry characteristics
? Rescue
? Near death, strategy irrelevant, goal is to stay alive
? Challenges are similar to turnaround with additional constraint of creditor &
stakeholder plan that has to be agreed to or firm is liquidated
S
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Text Model of Corporate Renewal
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Managing Change
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Levers of Transformation
? Vision
? Desired end state must be communicated & supported
? Skills
? All employees must have the skills needed or be developing them, this could impact
hire/fire/promote decisions
? Incentives
? Needed to encourage people to act in the way needed
? Resources
? Must be there in quantity and quality required
? Structure
? Needed for allocation of power & resources
? Execution Plan
? Actions must be organized into a plan that provides for co-ordination, sequencing,
responsibility for results, and resource allocation
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Levers of Transformation
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Novelis
? Novelis was created in 2004 when Alcan, a Canadian aluminum
company, spun off its rolled products business as a separate
business. This became necessary so Alcan could satisfy
European Union after its acquisition of Pechiney. a French
aluminum company. Novelis then found itself struggling to stay
competitive as it found itself saddled $2.95 billion in debt, rising
energy costs, and metal price ceilings.
? The preparation questions for the case are:
? Describe Alcan & Novelis
? What is the rationale behind the spinoff of Novelis from Alcan?
? Use PESTEL
? What are the implications for the spinoff for Novelis?
? What did Novelis do after it became a separate company?
? How can Novelis compete in the global rolled products business?
doc_365252643.pdf
This document about strategic management instructor dr. steve hummel, p. eng.
Strategic Management
BU481 Class 9
Instructor: Dr. Steve Hummel, P. Eng.
1
Dr. Stephen J. Hummel, P. Eng.
“The best CEOs I know are
teachers, and at the core of
what they teach is strategy.”
Michael Porter
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Agenda
? Instructor evaluation
? Final Exam
? New Ventures & Corporate Renewal
? Novelis
2
Dr. Stephen J. Hummel, P. Eng.
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Final Exam
? For the final exam we will be identifying the
case that will be used 72 hours before the
exam. In the exam we will pose specific
questions that we want answered.
? This approach is "friendly" to our students
who have English as a second language. We
have also said that it is open book.
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Understanding Derivatives -"A Primer“
Heidi is the proprietor of a bar in Detroit .She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to
patronize her bar.
- To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
- Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers' loans).
- Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon
she has the largest sales volume for any bar in Detroit .
- By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases
her prices for wine and beer, the most consumed beverages.
- Consequently, Heidi's gross sales volume increases massively.
- A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's
borrowing limit.
- He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral!!!
- At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.
- These "securities" then are bundled and traded on international securities markets.
- Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb!!!, and the securities soon become the hottest-selling items for some of the nation's leading brokerage
houses.
- One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on
the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.
- Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
- Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.
- Overnight, DRINKBOND prices drop by 90%.
- The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the
community.
- The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.
- They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
- Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over
by a competitor, who immediately closes the local plant and lays off 150 workers.
- Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached
cash infusion from the government.
- The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar.
Now do you understand?
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
New Venture Creation
? Entrepreneur
? Two types, Opportunistic & Craftsperson
? Inside a firm is called “Intrapreneur”
? It is all about understanding and capturing
opportunity
? Orthodox views create blind spots or frozen
preferences, entrepreneurs use insight to remove
those constraints
? There is lots of uncertainty so careful
experimentation can be used to drive that away
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Maybe Some Frozen Preferences?
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Resources
? Usually very limited
? Requires flexible staff for startup
? Talented but expensive people are usually acquired
once the business is stabilized
? Breakeven is a crucial calculation
? “Bootstrapping” is a smart way to get started
? Low upfront capital requirements
? Short sales cycles (under a month)
? Short payment terms (under a month)
? Recurring revenue
? Word-of-mouth advertising
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Organization
? Needs to be fluid initially but requires structure and
formalized responsibilities at some point
? Plans are crucial, along with metrics, key plan is an
exit strategy to capture the value of the firm
? Professionalization of management and leadership
are always issues in entrepreneurial firms, if only for
timing reasons, i.e., when & what?
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
“Dirty Little Secrets”
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
New Firm Stages
? Stage I
? No revenue, little/no expense history, usually indicates and incomplete team
with an idea, plan, & maybe some product development
? Stage II
? No revenues but some expenses indicating that product development is
underway
? Stage III
? Venture shows revenues but is still operating at a loss
? Stage IV
? Venture has revenues & is operating profitably
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Intrapreneurs
? Usually have more resources than an entrepreneur but may not be as
efficient as using them because “they are there”
? 10 KSFs for intrapreneurship (first 7 for all cases, last 3 for big firm);
? Put the interests of the new venture first (decouple personal interest)
? Hire motivated people (urgency is everything, unusual in a big firm)
? Build on what exists (constraints with respect to existing resources & arenas)
? Do not appear to threaten existing products/services (negative perspective)
? Be ready to co-operate (fit into the control systems)
? Have a powerful sponsor (protection, advice, & insight)
? Anticipate & jump on tectonic shifts (major changes inside or outside mean an
opportunity to see if the startup can provide a solution)
? Get freedom to operate (removes impact of bureaucracy, separate business helps)
? Get a separate location (foster esprit des corps, protects resources, & avoids
explanations)
? Attract little attention (low profile=uninterrupted progress)
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Corporate Renewal
? Problem=declining performance
? Causes
? External
? Political
? Economic
? Sociocultural
? Technological
? Ecological
? Legal
? Internal
? Management preferences
? Organization
? Resources
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Hofer Turnaround Strategies
Breakeven
point
Profit/Loss
Corridor
Variable
Costs
Fixed
Costs
Capacity
Total Costs
Total Revenue
Figure 1
Deciding on the Type of Operating Turnaround Strategy to Follow
Normal
Operating
Corridor
Cost
Cutting
Strategies
Combination
Strategies
Revenue
Increasing
Strategies
Asset
Reduction
Strategies
Source: Hofer, 1980, Turnaround Strategies, Journal of Business Strategy, 1 (1)
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Bibleault Turnaround Stages
Figure 2
Stages in the Turnaround Process
Turnaround Response: The Turnaround Response refers to actions
taken by a firm in response to the occurrence of a turnaround
situation. The overall response is considered to consist of two
overlapping stages; the Retrenchment Stage and the Recovery Stage
Retrenchment Stage: The initial response
to turnaround situations for many firms
consists of reductions in costs and assets.
The primary objective for these reductions
is to stabilize the performance decline. The
Retrenchment response, if persistent, is
observable as changes in income and
balance sheet accounts.
Objectives:
Survival
Positive Cash Flow
Strategies:
Liquidation
Divestment
Improve Operational Efficiency
Product Elimination
Head Count Cuts
Recovery Stage: As a firm Achieves
stability it begins to emphasize a set of
activities that represent the
implementation of the firm’s long term
strategy. The intensity of the recovery
response relates to the degree of strategy
change present in the overall recovery
response.
Objectives:
Long Term Profitability
Growth in Market (often objectives
designed to earn an acceptable ROI and
achieve product improvement)
Strategies:
Market Penetration
Re-concentration/Segmentation
New Markets
Acquisitions
New Products (often with operating
strategies designed to continue cost
control and maximize asset utilization)
Source: Bibeault, 1982, Corporate Turnaround: How
Managers Turn Losers Into Winners! Maryland: Beard
Books
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Hambrick, Schecter Model
Development Growth Shakeout Maturity Saturation Decline
Stage of Product/Market Evolution
Strong
Average
Weak
Very
Weak
Relative
Competitive
Position
Figure 3
Assessing Current Strategic Market Position
Source: Hambrick, Schecter, 1983, Turnaround Strategies for Mature Industrial Product Business Units, Academy of
Management Journal, Vol. 26 (2)
Share
Increasing
Turnaround
Strategies
Share
Increasing
Turnaround
Strategies
Niche Marketing Turnaround Strategies or Liquidation Strategies
Segmentation
Turnaround
Strategies
Market
Concentration
and
Asset
Reduction
Turnaround
Strategies
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Situations of Misfit
? Continual corporate renewal
? Proactivity means current negative financial impact is low
? Challenge is motivating internal stakeholders because of good current firm
performance
? Transformation
? Financial downturn, requires significant action, identify misfits and eliminate
them
? Challenge again is motivating people again because viewpoint is that de
? Turnaround
? Very serious decline, radical action needed to return to profitability
? Challenges include lack of resources, internal constraints, & unfavourable
industry characteristics
? Rescue
? Near death, strategy irrelevant, goal is to stay alive
? Challenges are similar to turnaround with additional constraint of creditor &
stakeholder plan that has to be agreed to or firm is liquidated
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Text Model of Corporate Renewal
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Managing Change
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Levers of Transformation
? Vision
? Desired end state must be communicated & supported
? Skills
? All employees must have the skills needed or be developing them, this could impact
hire/fire/promote decisions
? Incentives
? Needed to encourage people to act in the way needed
? Resources
? Must be there in quantity and quality required
? Structure
? Needed for allocation of power & resources
? Execution Plan
? Actions must be organized into a plan that provides for co-ordination, sequencing,
responsibility for results, and resource allocation
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Levers of Transformation
S
t
r
a
t
e
g
i
c
M
a
n
a
g
e
m
e
n
t
Novelis
? Novelis was created in 2004 when Alcan, a Canadian aluminum
company, spun off its rolled products business as a separate
business. This became necessary so Alcan could satisfy
European Union after its acquisition of Pechiney. a French
aluminum company. Novelis then found itself struggling to stay
competitive as it found itself saddled $2.95 billion in debt, rising
energy costs, and metal price ceilings.
? The preparation questions for the case are:
? Describe Alcan & Novelis
? What is the rationale behind the spinoff of Novelis from Alcan?
? Use PESTEL
? What are the implications for the spinoff for Novelis?
? What did Novelis do after it became a separate company?
? How can Novelis compete in the global rolled products business?
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