Marshall School of Business

University of Southern California

MOR 562: STRATEGIC CHOICE

AND VALUATION
Fall, 2010
Professor:
Office:
Phones:
Fax:
Email:
Office Hours:
Prerequisites:

Carl W. Voigt, Ph.D.

Bridge Hall 303-E
USC Office: (213) 740-0764
Mobile: (213) 446-1753
(213) 740-3822
cvoigt@marshall.usc.edu
Monday & Wednesdays, 9:00-10:00 am, and by appointment.
Recommended completion of GSBA 540 & 515 or GSBA 519a&b or GSBA 529

COURSE DESCRIPTION
Strategic Choice and Valuation is an advanced strategy elective designed for MBA students interested in the
strategic management of businesses and corporations. The central purpose of the course is to develop frameworks
for evaluating opportunities to achieve superior financial performance, and to provide students with a strong
grounding in the analytical skills involved in real-world strategic business planning. Mastering the frameworks and
analytical skills covered in this course is essential for any student intending to follow a career in consulting, business
planning, or upper echelon management. These skills are also invaluable for students intending to work for startup
firms. Because presentation plays such a critical role in the strategic planning process, the course will emphasize
mastery of both content and of appropriate and effective presentation skills.
This course is intended for those with an interest in strategy who want to get below the surface of business and
corporate strategy analysis. This elective will revisit the basic topics covered in a first principles of strategy
course (such as industry analysis, competitor analysis, strategy formulation, positioning and sustainability analysis,
value chain analysis, cost and differentiation-advantage analysis, corporate diversification and vertical integration
analysis, etc.) but will do so with an emphasis on depth, detail, and quantitative precision.
The course will emphasize two recurring themes: scenario analysis and strategic valuation. By definition, strategic
investment decisions are made in the presence of irreducible uncertainty. An ability to think well about uncertainty
gives a strategist a real advantage. Recognizing the type of uncertainty faced, and distinguishing risk from
uncertainty are important analytical steps that must be mastered. The course will make much out of scenario
planning as a way to deal with irreducible uncertainty. The second theme is strategic valuation. A substantial
portion of the course will be devoted to mastering the skills of strategic valuation; including the application of net
present value techniques to strategic analysis.
In a very real way, this is a skills course. As an advanced elective our goal will be to drive deeper into the
microeconomic reasoning behind strategic value creation. This will necessarily force us to use microeconomic
models, frameworks, and theories to analyze the sources of rents at the firm level in both static and dynamic
frameworks. We will apply these models to strategic decisions such as market entry, expansion strategy, investing in
capabilities, and firm configuration. Additionally, good strategy analysis requires thoughtful analyses of the payoffs
to these strategic decisions. To do this we must master and apply valuation methods to our strategic decisions. We
will use NPV analysis in strategic valuation, and valuation under uncertainty using scenario analysis.

COURSE PEDAGOGY
This class will use a combination of readings, exercises, lectures and case discussions. We will make strong use of
business cases. Cases provide a natural test-bed for theory and provide vivid examples that aid the memory of
important concepts. While nothing can surpass first hand personal industry and managerial experience as a basis for
analysis and decision-making, case analysis is an indispensable proxy for the kind of knowledge that can only be
gained through years of experience and research. Lectures will be given to elaborate on key theoretical concepts and
frameworks. Students will also be required to conduct their own library research for some topics.
The learning experiences in this course are sequenced as expanding concentric circles. That is, we will cover
topics multiple times, but each time with increased depth and expanded detail.

COURSE EXPECTATIONS
I have very specific expectations as to what constitutes a good learning environment: a) thorough preparation, b)
active participation, and c) attendance. My expectations are as follows:
Preparation. Because this course relies heavily on advanced conceptual articles and case materials, extensive
before class preparation and in class participation are required to ensure the class' success. What you get from this
course will depend on what you put in not just in terms of your reading and analysis of the articles and cases, but
your willingness to question and to seek alternate perspectives, to be clear about your own position, and your being
prepared to defend it. Unless you have thought about the readings and cases, it is very hard to learn for others
questions and contributions to class.
A Guide to Case Analysis. Preparation for a case discussion should:
1. Begin with a rapid reading of the assigned case and other materials.
2. Then, it is worthwhile to review the discussion questions provided for clues as to what issues require
special attention.
3. The next step is normally to re-read the case carefully, taking notes that sort information, facts, and
observations under a number of relevant headings. You should try to formulate theories or hypotheses
about what is going on as you read ("the company loses money on small orders"), modifying or rejecting
them as new information surfaces ("Table 2 shows that shipping costs per unit are higher for small orders,
but only for long-distance shipments"). Push yourself to reach definitive conclusions before you come to
class.
4. All students should perform quantitative analyses, crunching whatever numbers are available. It is also
very important to provide quantitative support wherever possible, particularly when exploring various
hypotheses as to the nature and importance of certain phenomena. (If the requisite data are not available in
the case, a precise description of what data are missing often triggers ideas for making creative use of the
information that is available.) It is usually worthwhile to identify trends in the firm or industry, preferably
with a quantitative measurement. Some of these trends, often very important ones, will not be flagged in
the text of the case.
5. Finally, preparation will include notes that can be used to guide your interventions in class discussions.
Guide to Article Analysis. The following set of questions is provided to guide your analysis of the readings assigned
in this course.
1. What is the purpose of this article? What problem or issue does it address? Just what is the author trying to
do?
2. What are the basic assumptions/assertions/values that underlie this piece? (View of human nature; purpose
of organization--e.g. economic efficiency vs. human satisfaction; degree to which planning is possible; etc.)
Are these assumptions explicit or implicit?
3. What is the basic argument/thesis? What are the major findings and conclusions?
4. What is the nature of the evidence presented in support of the argument/ thesis? (Impressionistic,
theoretical, empirical, etc.) Are the conclusions well supported?

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

5.

What problems or concerns are you left with? How does the article relate to other articles you have read
and to your own knowledge and experience? How does it contribute to your overall understanding of
business strategy?

Students will probably want to, and are strongly encouraged to, form study groups that will meet regularly to share
insights and ideas about the assigned readings and cases. While this is, of course, voluntary, past experience has
shown that a good grade depends on it.

COURSE EVALUATION
The grading scheme for this class will be as follows:
Class Contribution, Participation, Short Assignments, Case Notes
Four Tests (Short & Long)
Group Project & Presentation

15%
50
35
100%

In order to successfully pass this course, a passing grade (> 50%) must be achieved in each individual course
component. Final grades will be assigned on (approximately) the following basis: A's - 91 and above, B's 81 - 90,
C's 71 - 80, D's 50 - 70, and F's below 50. Plus and minus shades will be assigned to those immediately above or
below grade cutoff points. The distribution of grades will closely follow the guidelines of the Marshall School of
Business (an average class GPA of 3.5). (Faculty Handbook, 1994: 30).
ATTENDANCE POLICY
Class attendance is absolutely essential. All missed classes will be noted. The policy on missed classes is to allow
each student three (3) absences, no questions asked, no penalty. (Note that since class sessions are double sessions,
missing two classes is the as missing four regular class sessions.) All further absences over this limit will reduce the
student's participation grade and final course grade, no questions asked, no excuses of any kind accepted. Students
with an excessive number of absences are at risk of failing the course. Only Official University engagements, such
as scheduled officially USC Marshall sponsored case competition, sports events, will be accepted as exceptions to
this policy. Job interviews, etc., are not excused, so choose your absences carefully. Habitual lateness, leaving class
early, and/or exiting and re-entering during class sessions, for whatever reason, will be noted as evidence of low
course commitment and penalized.
COURSE CONTRIBUTION AND CLASS PARTICIPATION
Your overall commitment and attitude toward this course, and your daily active verbal participation in class
discussions, will be closely monitored. In grading class participation, I will look at both the quantity and quality of
your class contributions/interventions. Class participation is obviously a function of preparation, skills, attitude, and
a willingness to actively commit yourself in front of me and colleagues. In relative terms, a classroom is a cost-free
environment for experimenting and learning to "play the game." Make use of it. Shyness is no excuse.
With regard to quality, the dimensions that we look for include:
Relevance -- does the comment bear on the subject at hand? Comments that do not link up with what the
discussion is focusing on can actually detract from the learning experience.
Causal Linkage -- are the logical antecedents or consequences of a particular argument traced out? Comments
that push the implications of a fact or idea as far as possible are generally superior.
Responsiveness -- does the comment react in an important way to what someone else has said?
Analysis -- is the reasoning employed consistent and logical?
Evidence -- have data from the case, from personal experience, from general knowledge been employed to
support the assertions made?
Importance -- does the contribution further our understanding of the issues at hand? Is a connection made with
other cases we have analyzed?

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

Clarity -- is the comment succinct and understandable? Does it stick to the subject or does it wander?
It is expected that you will make brief notes or outlines before coming to class whether they are specifically asked
for or not in the Daily Outline. You should rely on these notes when contributing to the class discussion.
All students will be formally called on, at random, to take the lead in various aspects of class discussions at least
once or twice during the semester. If the student called upon is not present, is late, or is not sufficiently prepared to
make a substantial contribution to the class discussion, he/she will lose points for class contribution. If the student
makes helpful comments, he/she will accumulate points for class contribution. Since it is unlikely that there will be
enough opportunities to call on each student more than once or twice, be warned that failure to be thoroughly
prepared, on all occasions, can be devastating to your overall grade.
Each student will receive a score for participation at the end of each class session. The simple recitation of facts
from the readings or case will receive some credit toward the students class contribution score. Comments that do
more than simply recite facts, however, will receive substantially more credit. For instance, comments that provide
synthesis or raise counterintuitive points, will add much more to a students class contribution score. Students who
make no contributions will receive no credit. Comments that contain factual misstatements, demonstrate lack of
adequate preparation, or are distracting because they come too late in the discussion, will be penalized. Attempts to
dominate class discussion rarely result in consistent and significant contributions.
Participation Card: At the end of each class discussion, students who actively participated in the discussion
should turn in a Participation Card. These cards should list your name, the date, the case or topic discussed that day,
and a synopsis of your contributions during that days discussion. The Participation Cards will be used in
combination with the instructors own daily evaluations to determine your participation grade for the day. For this
purpose, please purchase a package of 3x5 index cards and bring them to each class.
Unannounced Quizzes: Students should expect regular pop quizzes. These quizzes will be given to assist
you in checking your mastery of the course concepts and tools. Multiple choice and short answer questions may be
given at the beginning of classes. No make-up opportunities will be given to students who are absent or late.
Student performance on these pop-quizzes will be used to determine a students participation grade.
Assigned Exercises: Throughout the course several exercises will be assigned. Some will be individual and
some will be group assignments. Please consult the course discussion outline that complements the syllabus for this
course.
Case Notes: Students should plan on turning case note write ups for at least 3 cases. Students may turn in up to
five (5) sets of case notes to supplement their participation grade. Please consult the course discussion outline that
complements the syllabus for this course for details on case write-ups.
GROUP PROJECT: SCENARIO ANALYSIS REPORT AND PRESENTATIONS
The major assignment for this course is a group scenario analysis project constituting 30 percent of the grade. As a
group, students are to conduct a scenario analysis and/or strategic valuation project. Specific details of the nature
and scope of the group project will be given in class. A comprehensive outline for the project is due on Monday,
September 20th. Groups are required to meet with me (in-person or by conference call) prior to September 8th to
discuss the selection of industry topic and focal company. No two teams can work in the same industrial sector so
select your topic quickly. A short 10-12 minute presentation on the current status and present industry drivers is due
on Monday, October 4th (10 percents). A full comprehensive presentation (25 minutes) is required in Session 29 and
the during the exam period. The final report is worth 25 percent; 15 percents for the report and 10 percent for the
presentation. I will grade the report while your peers will grade your presentation.
TESTS
There are four tests scheduled for this course. These tests will be non-cumulative and will test mastery of all
materials covered in the sessions immediately prior to the test. Two tests will be short (30 minute) tests with
MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

multiple choice and short answer questions. Two tests will be longer tests (50-60 minutes) requiring the solving of
problems sets. More specific information will be given in class. Check the course schedule for the dates of the
tests.

COURSE MATERIAL
There are two course readers for required in this course, and recommended (strongly) complementary book:
Liebeskind, Value in Strategy
This note contains a note on using value-based thinking to make strategic thinking. In effect it is our textbook
for the course.
Cases and Articles
There is a course reader containing the cases and supplementary articles for the course available in the
bookstore.
Blackboard Posting
Where online versions of articles are available I will post them, or the link to blackboard. This will help reduce
the cost of materials for the course.
(Recommended) Schwartz, The Art of the Long View, Doubleday, 1996
This must have book on scenario thinking is available widely.
All course readers are available from University Partners in the University Book Store. Additionally, when
necessary I will place additional materials in the Book Store for you to purchase.

ACADEMIC INTEGRITY
The following information on academic integrity, dishonesty, and the grading standard are placed here at the
recommendation of the School of Business Administration Faculty and are taken from the Faculty Handbook.
The University, as an instrument of learning, is predicated on the existence of an environment of integrity. As
members of the academic community, faculty, students, and administrative officials share the responsibility for
maintaining this environment. Faculty have the primary responsibility for establishing and maintaining an
atmosphere and attitude of academic integrity such that the enterprise may flourish in an open and honest way.
Students share this responsibility for maintaining standards of academic performance and classroom behavior
conducive to the learning process. Administrative officials are responsible for the establishment and
maintenance of procedures to support and enforce those academic standards. Thus, the entire University
community bears the responsibility for maintaining an environment of integrity and for taking appropriate
action to sanction individuals involved in any violation. When there is a clear indication that such individuals
are unwilling or unable to support these standards, they should not be allowed to remain in the University.
(Faculty Handbook, 1994: 20)
Academic dishonesty includes: (Faculty Handbook, 1994: 21-22)
1.
2.
3.
4.

Examination behavior - any use of external assistance during an examination shall be considered academically
dishonest unless expressly permitted by the teacher.
Fabrication - any intentional falsification or invention of data or citation in an academic exercise will be
considered a violation of academic integrity.
Plagiarism - the appropriation and subsequent passing off of anothers ideas or words as ones own. If the
words or ideas of another are used, acknowledgment of the original source must be made through recognized
referencing practices.
Other Types of Academic Dishonesty - submitting a paper written by or obtained from another, using a paper or
essay in more than one class without the teachers express permission, obtaining a copy of an examination in

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

advance without the knowledge and consent of the teacher, changing academic records outside of normal
procedures and/or petitions, using another person to complete homework assignments or take-home exams
without the knowledge or consent of the teacher.

STUDENTS WITH DISABILITIES

Any student requesting academic accommodations based on a disability is required to register with Disability
Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained
from DSP. Please be sure the letter is delivered to me as early in the semester as possible. Your letter must be
specific as to the nature of any accommodations granted. DSP is located in STU 301 and is open 8:30 am to 5:00
pm, Monday through Friday. The telephone number for DSP is (213) 740-0776.

RETURNED COURSEWORK
Returned paperwork, unclaimed by a student, will be discarded after 4 weeks and hence, will not be available should
a grade appeal be pursued following receipt of his/her grade.

ABOUT YOUR PROFESSOR

Carl Voigt is a Professor of Strategy (Clinical) in the Management and Organization Department. He received his
Ph.D. from the Anderson School at UCLA in strategy and organization. He is a native New Zealander, although he
completed his undergraduate work at Avondale College in New South Wales, Australia.
Carl specializes in teaching competitive and global strategy, and management courses in both the undergraduate and
MBA programs here at USC. His academic interests are in business, corporate and global strategy, and in particular
in entrepreneurship. Carl has consulted with firms and organizations in the entertainment, food processing, tourism,
health care, engineering, telecommunications, defense, and not-for-profit sectors. He has also conducted numerous
seminars for teams of managers in the areas of management and strategy.
Initially, Carl began his career as a high school teacher. His first job was teaching high school business subjects on
Guadalcanal in the Solomon Islands. During that time he also served as Chair of the Business Studies Curriculum
Development Committee and a member of the National Secondary School Curriculum Committee for the Solomon
Island government.
Carl has earned five Marshalls Golden Apple teaching awards: one from the Marshall MBA students in 2001, and
three from the Marshall undergrads (2005, 2007, and 2010) and one from the Marshall MBA.PM students in 2008.
Carl was previously been an Associate Dean of our Marshall Undergrad Program, MBA.PM and EMBA Programs,
and Marshall MBA Program for seven years.
In a past life, he was heavily involved in coaching basketball; having coached at the high school, college and
international levels. While in the Solomon Islands he coached the Solomon Island national basketball team for 2
years, along with being National Director of Refereeing. Today, he is first and foremost a father. He spends most of
his free time, now, organizing and coaching and refereeing in recreational programs for his children (He has three
sons: 25, 20 and 16 years old, and a 15 year old daughter). Carls wife, Diane, teaches grades 7-10.

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

(Tentative) COURSE SCHEDULE

Please note: The purpose and nature of electives is to explored advanced topics in greater breadth and in deeper
detail. As a consequence it highly likely that we may need to change the intended course schedule, either to slow
down to investigate topics in more detail, or to add new topics to our agenda. Please use this syllabus schedule as a
guide, only. As best we can, we will try to stick to the published deliverable test dates. However, these dates may
need to be changed. If and when changes to deliverables need to be made, they will be announced two weeks in
advance. Alternative dates may be arranged for deliverables and tests, but these must be pre-arranged, two weeks in
advance, and done so in writing (email). Further, additional articles, cases, and notes will be posted to blackboard
(or made available through the bookstore) as needed. Please check blackboard regularly for supplemental articles.

MODULE I:

INTRODUCTION: STRATEGIC MANAGEMENT AND STRATEGIC

PLANNING

Session 1:
8/23

Course Introduction
Core Strategy Concepts: A Conceptual Review
Reading: Strategys strategist: An interview with Richard Rumelt, McKinsey Quarterly

Session 2:

Strategic Management Challenge : A Conceptual Review and a Quantitative

Extension
Case:
Hudepohl Brewing Company
Readings: Liebeskind, Value in Strategy, Section I
Strategic Decisions, Strategy and Value

8/25

Session 3&4:
8/30 & 9/1

Strategic Planning: State of the Art

Cases:
Honda (A) & (B)
The British Motorcycle Industry at a Crossroads
Readings: Mintzberg, The Rise and Fall of Strategic Planning
DeGues, Planning as Learning
Gavetti and Rivkin, How Strategists Really Think: The Power of Analogy

MODULE II:

SCENARIO ANALYSIS: THINKING DEEPLY ABOUT THE FUTURE

Session 5
9/8

Scenario Analysis: Thinking into the Future

Case:
Strategic Planning at United Parcel Service
Readings: Liebeskind, Value in Strategy, Section IV
Introduction to Scenarios
How to Build Scenarios
Industry Evolution Scenarios
Exploratory Scenarios
Cornelius, Van de Putte and Romani, Three Decades of Scenario Planning in Shell
A Note on Scenario Planning
Wilkinson, How to Build Scenarios, GBN Global Business Network (download)

Sessions 6&7:
Sunday 9/12***

WORKSHOP Scenario Analysis: Thinking into the Future

Guest Lecture: Mark Capper

Session 8
9/13

Scenario Analysis: Thinking into the Future

Using Scenarios to frame strategic decisions
Conclusions and Wrap Up
TEST I

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

MODULE III: USING VALUATION IN STRATEGIC ANALYSIS

Session 9
9/15

Using Valuation in Strategic Analysis: Cost-Benefit Analysis and Spillovers and

Strategic Investment Options
Exercises: Jeans Jeans
Readings: Liebeskind, Value in Strategy, Section IV
Net Present Value: Basic Concepts
Luehrman, Whats it worth? A General Managers Guide to Valuation

Session 10
9/20

Using Valuation in Strategic Analysis: Practice in Valuation

Cases: Eli Lilly and Company: Manufacturing Process Technology Strategy (1991)

Session 11
9/22

Using Valuation in Strategic Analysis: Spillovers and Strategic Investment

Options
Exercises: Piggys Hotdog Stand
Cases: Eli Lilly and Company (Continued)
Readings: Liebeskind, Value in Strategy, Section IV
Spillovers
Social Cost-Benefit Analysis: A Brief Note
Decision rules
Sensitivity Analysis

Session 12
9/27

Scenario Project Presentation

Industry Analysis and Driving Forces

MODULE IV: UNDERSTANDING FUNDAMENTAL SOURCES OF VALUE

Session 13:
9/29

TEST II
Rents, Strategy and Value: An Introduction
Readings: Liebeskind, Value in Strategy, Section II
Rents, Strategy and Value

Session 14
10/4

Fundamentals I: Analyzing Rent Potentials - Monopoly Rents I

Exercises: The Dobie Industry in Pecan County #1
Readings: Liebeskind, Value in Strategy, Section II
Monopoly Pricing and Merit Wants

Session 15
10/6

Fundamentals I: Analyzing Rent Potentials - Monopoly Rents II

Exercises: The Dobie Industry in Pecan County #2

Session 16
10/11

Fundamentals II: Analyzing Rent Potentials - Ricardian Rents I

Case:
Du Ponts Titanium Dioxide Business
Reading: Liebeskind, Value in Strategy, Section II
Analyzing Ricardian Rents
The New Economics
The Triple Bottom Line

Session 17
10/13

Fundamentals II: Analyzing Rent Potentials - Ricardian Rents II

Case:
Du Ponts Titanium Dioxide Business (Continued)

Session 18 & 19
10/18 & 20

Fundamentals III: Competition and Sustainability I

Case:
Diaper Industry in 1974
Reading: Liebeskind, Value in Strategy, Section II

MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010

Rents, Competition and Sustainability

An Extremely Brief Note on Game Theory
Stakeholder Theory and Stakeholder Analysis
Brandenberger and Nalebuff, Right Game: Use Game Theory to Shape Strategy
Session 20
10/25

TEST III
Fundamentals IV: Corporate Strategy: Creating Value by Expanding the Scope of
the Firm: An Introduction
Readings: Liebeskind, Value in Strategy, Section III
Rents, Competition and Sustainability: The Scope of the Firm

Session 21
10/27

Fundamentals IV: Corporate Strategy: Creating Value by Expanding the Scope of

the Firm
Case:
The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire
Readings: Liebeskind, Value in Strategy, Section III
Rents, Competition and Sustainability: The Scope of the Firm

Session 22
11/1

Fundamentals IV: Corporate Strategy: Vertical Integration

Case:
Arauco: Forward Integration or Horizontal Expansion?
Readings: Liebeskind, Value in Strategy, Section III
Rents and the Value Chain: Vertical Integration

Session 23
11/3

Fundamentals IV: Corporate Strategy: Diversification

Case:
General Mills
Readings: Liebeskind, Value in Strategy, Section III
Rents and Diversification

11/8 & 11/10

N O C LAS S E S
Work on Final Scenario Project

MODULE V:

FORECASTING AND SCENARIO PLANNING: VALUING FUTURE

INVESTMENTS UNDER UNCERTAINTY

Session 24
11/15

Probability-weighted Scenario Analysis: Integrating Scenarios with Valuation

Case/Exercises: June Mountain
Readings: Liebeskind, Value in Strategy, Section VI
Uncertainty, Risk and Valuation
The Cognitive Problems of Estimating Risks and Dealing with Uncertainty
Desmet, Francis, Hu, Koller and Riedel, Valuing dot-coms The McKinsey
Quarterly, 2000, Number 1 (download)

Session 25
11/17

Analyzing Flexibility and Adaptation

Case/Exercises: Solar Rays; Eli Lilly
Readings: Liebeskind, Value in Strategy, Section VI
Flexibility and Adaptation

Session 26
11/22

Strategy-making in the Face of Uncertainty

Case:
The Chain Saw Industry in 1974
Reading: Courtney, Kirkland & Viguerie, Strategy Under Uncertainty

Session 27
11/24

TEST IV

Session 28-30
Final Presentations
11/29 & 12/2 & Exam Session
MOR 562: Strategic Choice and Valuation Analysis

Fall, 2010